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BY THE SAME AUTHOR. 



ELEMENTS OF POLITICAL ECONOMY. 

By Arthur Latham Pbrry, Professor of History and Political Economy 
in Williams College, nth edition, revised and enlai:ged. One vol. crown 
8vo ; cloth, J2.50. 



AN 



INTRODUCTION 



TO 



POLITICAL ECONOMY. 



BY 



^ 



ARTHUR LATHAM PERRY, LL.D., 

Orrin Sage Professor of History and Political Economy in Williams College. 
Author of "■ Elements of Political Economy" 



A market for products is products in market. 



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NEW YORK: "" 

SCRIBNER, ARMSTRONG, & COMPANY. 
1877. 




Copyright. 

By SCRIBNER, ARMSTRONG, & CO. 

1877. 



Stereotyped and Printed hy 

Rand, Avery, and Company, 

117 Franklin Street, 

Boston. 



m ACKNOWXEDQMENT OF VARIOUS FRIENDLY OFFICB8, 

^fjts Folutne is Enscribrt 

TO 

JAMES BUELL OF NEW YORK, 

President of Importers' and Traders' National Bank. 



PEEFAOE. 



I HAVE endeavored in this book so to la}'^ the foun- 
dations of Political Econom}' in their whole circuit, 
that they will never need to be disturbed afterwards by 
persons resorting to it for their earl}' instruction, how- 
ever long and however far these persons maj' pursue 
their studies in this science. It seems to me of no 
advantage, but quite the reverse, for any young person 
to gain a conception of a science that will have to be 
discarded afterwards for a better one, or to la^' in the 
interest of ease and quickness temporar}' foundations 
that will have to be relaid before an}- solid and extended 
superstructure can be built upon them. 

I have endeavored at the same time to make the 
sense of every sentence as clear as language can make 
it, and to connect the limitations of all general princi- 
ples with the statement of the principles themselves. 
Political Econom}^ has to deal throughout with the 
idea of Value, which is not onl}' an abstract but also a 
relative idea ; and it is a task of some difficulty to 
combine with a scientific exactness of treatment a 
plain and easy waj- of putting the points before 3'oung 
minds. I dare not hope that I have succeeded com- 
pletely in this task ; for I appreciate thoroughly what 

5 



6 PREFACE. 

is involved in the fact that two desires and two efforts 
of two persons, and these in constant action and 
re-action on each other, mnst be borne in mind through- 
out in each and every transaction involving Value ; 
but I have aimed constantly at simplicity in connection 
with accurac}' , and at making the discussions as lively 
and interesting as the subject-matter will allow. 

I have also tried to make the discussions bear 
directly upon questions of current interest, such as the 
disputed points in relation to Mone}^, Trade and Taxa- 
tion ; and the illustrations of principles have been 
drawn almost entirely from recent facts and events 
in this country and in Europe ; so that there is reason 
to hope that the book may prove acceptable to general 
readers of all ages in life, while its more special aim is 
to become a text-book in high schools, academies and 
colleges. It is believed both by author and publishers 
that young persons of ordinary intelligence and train- 
ing, who have reached the age of fourteen years, will 
find no difficulty in mastering every point in these 
pages ; and it is also believed that man}^ colleges, 
which feel compelled to allot too short a time to this 
science for the mastery of a more copious treatise, will 
find this compact presentation of economical facts and 
principles just adapted to their wants. 

It is now eleven years since my ' ' Elements of Politi- 
cal Economy " were given to the public. I am deeply 
grateful to teachers and others, whose kindly appreci- 
ation of that book has already carried it into its four- 
teenth edition. The present volume is not designed in 
any sense to supersede that. That is copious, this is 
condensed. That contains sixteen chapters, this con- 
tains but six. Neither is the present volume in any 



PEEFACE. 7 

sense a compendium of that. Of course, the same 
scientific divisions and doctrines are maintained in 
them both, but the present is a new book throughout, 
very few sentences having been transferred from the 
one book to the other, and fresh ilkistrations having 
been employed for the most part. If the public shall 
continue to accord its favor to the older book, it is my 
firai purpose to continue to keep it by revision and 
amendment full}' abreast of the times so long as it 
promises to be useful ; and if the public shall approve 
this second attempt to popularize Political Economy, 
I shall spare no pains to make it as perfect in sub- 
stance and in form as my abilities may permit it to 
become. 

My acknowledgments are due to my publishers for 
the original suggestion of this book, and for many 
hints in the course of its preparation which have con- 
tributed to improve it. M}' acknowledgments are also 
due to m}- friend Fredei-ick Leake, of Williamstown, 
a retired banker of long experience, whose cour- 
teous readiness to communicate his knowledge of all 
banking principles and details is scared}' surpassed 
by the breadth and minuteness of that knowledge 
itself. A. L. Perex. 

Williams College, Feb. 1, 1877. 



TABLE OF CONTENTS. 

— ♦— 

CHAPTER I. 

Faoe. 

Vai,xje 11 

CHAPTER n. 
PkoDuctiok 69 

CHAPTER III. 

COMMEBCB 132 

CHAPTER IV. 
Money 186 

CHAPTER V. 
Credit 266 

CHAPTER VI. 
Taxation 818 



9 



POLITICAL ECONOMY. 



CHAPTER I. 

VALUE. 

Certain common actions on the street or in the 
market, that men often pass by without thinldng 
any thing about them, give forth, when questioned, 
examined, and traced back to their motives, a 
great deal of useful knowledge. Indeed, they 
give forth the rudiments of a Science. This sci- 
ence is called Political Economy. It has been 
mostly called so for nearly three centuries, since 
Antoine de Montchrestien issued his book under 
that title at Rouen in France in 1613 ; and it is 
worth remembering, that Aristotle, a great thinker 
among the Greeks, used this title, though in a 
different sense, and threw out a good many sound 
thoughts upon this subject, more than three hun- 
dred years before Christ. 

Several other names for this science have been 
suggested from time to time, and if it were a 
question about the adoption in the first instance 

11 



12 POLITICAL ECONOMY. 

of a riglit name, one or two of these might deserve 
the preference over the more accepted one, but 
usage is now become so fixed as to make any- 
general change improbable. Archbishop Whately 
proposed in 1831 to call this science Oatalactics, 
from the Greek verb to exchange ; Mr. Macleod 
has since offered the still better term Economics, 
which involves only a slight change from usage ; 
and recently Professor Thompson has suggested 
the term National JEconomy^ in close imitation of 
the German name and conception of the science. 
The word Economy is derived from two Greek 
words, which mean the law of the estate ; and the 
reasons why this word with its adjective " Politi- 
cal " is properly applied to our science will more 
and more appear as we proceed. 

The one peculiarity of the actions referred to, 
that brings them under the view of this science, 
is, that one person renders somethijig to another for 
the sake of receiving hack from that person some- 
thing in return. The milkman, for example, deliv- 
ers to the baker a quart of milk, and receives in 
pay a loaf of bread. This is a simple instance 
of exchange, and contains, in substance, the points 
of the whole matter. Let us analyze this instance. 

First, there are two persons, the milkman and 
the baker. Second, there are two things, the quart 
of milk and the loaf of bread. Third, there are 
two desires, the desire of the milkman for bread 
and the desire of the baker for milk. Fourth, 
there are two efforts involved, the effort of the 



VALUE. 13 

milkman to procure the milk and the effort of the 
baker to procure the loaf. Fifth, there are two 
estimates implied, the estimate of the milkman by 
which he prefers the loaf to the milk, and the 
estimate of the baker by which he prefers the 
milk to the loaf. Sixth, there are two actions, 
the action, namely, of each party passing over to 
the other the ownership in something for the sake 
of receiving from the other the ownership in some- 
thing else. Seventh, there are two satisfactions, 
for the sake of which the transaction was had, 
and in which the transaction ends, namely, the 
satisfaction of the milkman in the possession of 
the loaf of bread and the satisfaction of the baker 
in the possession of the quart of milk. It is with 
such transactions as this, and only with such, 
every one of which has the peculiarity defined 
above, and every one of which can be analyzed 
with the same results as this, that our science of 
Political Economy has to do. 

In this instance of the exchange of the milk for 
the bread, or, what is exactly the same thing, the 
bread for the milk, the things exchanged are 
material, visible, tangible things, such as are 
called in Political Economy • Commodities. This is 
the first class of things exchanged, and they must 
be carefully noted. Originally, the word commod- 
ity was an abstract noun, and meant nearly the 
same as utility. Gradually it took on a concrete 
sense, and came to mean the things that afford the 
utility rather than the utility itself, such as goods, 



14 POLITICAL ECONOMY. 

wares, merchandise, the produce of land and man- 
ufactures. About two hundred years ago, Locke 
said, " Commodities are movables, valuable by- 
money, the common measure." Although the 
notion of movableness was long attached, and is 
still attached more or less, to the term Commodi- 
ties, the legal distinction between Real Estate and 
Movables is quite different from the economical 
distinction between commodities and the other 
two classes of exchangeable things. 

The distinctive feature of commodities is the fact 
that they are material rather than movable, and, as 
material, may be possessed, employed, and sold by 
individuals. The ownership always, and the com- 
modity itself usually, pass over at the time of the 
sale into the hands of the buyer. For example, a 
barrel of flour, a bale of cotton, a bushel of corn, 
a bag of coffee, are commodities. All such salable 
things from the jewel to a top are commodities. 
Horses and cattle are commodities. Ships are com- 
modities. Houses and lands, provided an absolute 
title to the whole of them can be given by one per- 
son to another, are commodities ^Iso. A railroad 
might be a commodity under the definition, but is 
commonly bought and sold by means of Shares 
so-called, which belong to a different class of 
salable things, as we shall see. When, in 1867, 
the United States Government purchased of the 
Russian empire for $7,200,000 the territory called 
Alaska, both the sale and purchase were acts of 
sovereignty, and acts of sovereignty are very 



VALUE. 15 

different from acts of ordinary sale, and conse- 
quently, Alaska could not properly be called a 
commodity. Governments often buy and sell 
commodities proper, but in this case they are act- 
ing commercially, as individuals act, and not in 
their capacity as sovereignties. It is only with 
sales in a purely commercial sense that our science 
has any thing to do. 

The exchanges in the market-place, the trade of 
the shops, the commerce of the world, are largely 
in commodities. But it would be a serious mis- 
take to suppose that nothing is ever bought or 
sold excepting things of this character. Over 
against commodities, and yet having perfectly the 
peculiarity already mentioned, stands a second 
class of salable things, what are called in this 
science Personal Services. 

For example, a physician is called to prescribe 
for a patient in a case of fever. He renders to 
that patient no material thing, not even medicine. 
He writes a prescription merely. But he renders 
something nevertheless ; something, too, which the 
patient, or his friends, prefer to that which he or 
they must render in return ; the physician renders 
the intangible result of his medical skill, and the 
patient, if he gets well, or his representative, if he 
does not, in due time renders a five-dollar gold-piece 
in pay. This is a commercial transaction. It is a 
sale. The physician sells the result of his skill, 
which was acquired for that very purpose. He 
sells a personal service, and takes in this case a 



16 POLITICAL ECONOMY. 

commodity for pay. He might sell his personal 
service, and take in pay the personal service of 
somebody else, as, for example, the lawyer's ser- 
vice, who collects for him his bills. The domestic 
servant, the dramatic actor, the skilful singer, the 
eloquent advocate, the patient teacher, the faithful 
preacher, and a thousand more, sell their personal 
services, that is, render an immaterial, intangible 
something to others for the sake of receiving from 
them something else in return, and thus come com- 
pletely under the view of Political Economy. No 
inconsiderable part of the exchanges of the world 
are in things of this second sort. 

But there is still one other class of exchangeable 
things. A little way back, a reference was made 
to railroad shares. These may illustrate the nature 
of the third and only remaining class of things 
that are ever bought and sold. A railroad share 
does not give a title to a specific part of the rail- 
road, still less to the railroad itself, as a deed does 
to real estate, or a bill of sale to personal property, 
it is a claim or right merely. It gives the owner a 
claim to a certain proportion of the net earnings 
of the railroad. It gives him a right to participate 
in a certain way in the management of the road. 
It is property, because it was bought and may 
again be sold. It is not a title to any specific 
thing whatever, as a bill of lading is a title to a 
parcel of goods, but a general claim, or a right to 
demand something of somebody under specified 
conditions. 



VALUE. 17 

A railroad bond is similar to a railroad share 
in its nature as a claim, though the specified 
conditions of the right to demand something in 
virtue of it are different. A bond of the United 
States vests in the owner a right to demand of the 
government a certain sum as interest and another 
certain sum as principal at certain specified times. 
A United States treasury note, commonly called a 
greenback, is a printed promise of the government 
to pay to the bearer a certain number of dollars. 
Dollars are a commodity, but these promises are a 
claim. Bank bills, bank checks, all notes of hand, 
charges in a trader's book, copyrights, leases, and 
many more such things, belong to this third class 
of salable things. I shall generally call them claims. 
In some connections, the word credits best expresses 
their nature, in other connections, the word rights, 
— meaning always, of course, commercial rights. 
The amount of transactions throughout the world 
in this class of things is something amazing : the 
daily average exchanges of checks and bills at 
the London Bankers' Clearing House is about 
$100,000,000 ; at the New York Clearing House at 
present about $75,000,000. In 1872, the clearings 
at New York were over $32,000,000,000 for the 
year. These immense sums represent but a small 
fraction of the amount of the world's annual trans- 
actions in claims of all sorts, including interna- 
tional bills of exchange. 

If any one of my readers is disposed to question 
the accuracy of this analysis, and to think that 



18 POLITICAL, ECONOMY. 

there are more tlian three classes of purchasable 
things, the exercise of his ingenuity in trying to 
discover a fourth class is likely to convince liim in 
a little time that there is here a true trinity, as so 
often elsewhere in Nature. The interchanges of 
friendship, the gifts and self-denials of love, the 
bestowments of benevolence, as well as all frauds, 
thefts and robberies, are clearly out of the ques- 
tion here. These fall into the sphere of morals, not 
into the sphere of economy. The renderings of 
charity are free — they look not for a return ; the 
impulses of Duty are quite distinct from the im- 
pulses of trade ; and stealing, to which all fraud is 
assimilated, is a function of force, and not of mutual 
consent. The economical rendering is always vol- 
untary, is always made in view of a return and for 
the sake of a return, and this gives a pretty sharp 
line of difference between economy and morals. 

If, then, there are only three classes of things 
commercially exchangeable, it follows that there 
are only six cases of exchange possible ; — namely, 
(1) a commodity for a commodity, as the milk for 
the bread ; (2) a commodity for a personal service, 
as the half-eagle for the doctor's prescription ; (3) 
a commodity for a claim, as a house for ten rail- 
road shares ; (4) a personal service for a personal 
service, as the physician's exchange with the 
lawyer, already mentioned ; (5) a personal service 
for a claim, as a month's work for a fifty-dollar 
bill ; and (6) a claim for a claim, as a lease of a 
hotel for a bond of the United States. I believe 



VALUE. 19 

that every commercial transaction, that ever was 
made or ever will be made, falls under one or 
other of these six cases. 

The field of our science is now pretty definitely 
before us. We are to inquire after the terms, the 
definitions, the principles and their proofs, that 
are concerned with all these exchanges. It is 
obvious from all the old records of our race that 
such exchanges have been very numerous from 
the begiDnings of history ; it is open to observa- 
tion and record that these exchanges are con- 
stantly becoming more numerous, delicate and 
complicated ; the thoughts and efforts of most 
men are constantly employed in making ex- 
changes, or in preparing to make them ; the con- 
tinued existence, the increased comforts, the moral 
progress of mankind are largely dependent upon 
the ease and multiplication of exchanges ; and 
while many men have always given their minds 
to devise means to make exchanges easy, it is also 
true that some men have given, and are still 
giving, their minds to devise expedients to make 
exchanges difficult. The practical importance, 
accordingly, of this subject is very great. It 
would be impossible to overstate its importance. 
The French economist Say has shown that most 
of the European wars of the seventeenth and 
eighteenth centuries grew out of false principles 
relating to this subject. Very lately Gov. Mus- 
grave has said,^ " I suppose that the teachers of 

1 Studies in Political Economy. Lonrlon, 1875. 



20 POLITICAL ECONOMY. 

no science have so mnch human misery to answer 
for, or have assisted at so much fraud, as the 
doctors of Political Economy." The late Mr. 
Buckle affirmed on the other hand that " Adam 
Smith contributed more, by the publication of his 
Wealth of Nations, towards the happiness of man, 
than has been effected by the united abilities of 
all the statesmen and legislators of whom history 
has preserved an authentic account." It is, there- 
fore, to questions of vital consequence to the wel- 
fare and progress of society that the attention of 
the students of this science is called. 

Political Economy is the science of exchanges, or, 
what we shall see to mean just the same, the 
science of value. It was the French writer Con- 
dillac, in 1776, the same year in which Smith's 
"Wealth of Nations appeared, who first gave this 
definition to the science. The popularity of the 
latter book overshadowed this definition for a long 
time, until it was reproposed by Whately, and has 
now become the leading definition in all countries. 
Even the German Kiehl gives " the science of 
values" as the most exact definition.^ Of other 
definitions, the most common has been the " Science 
of Wealth." The word "Wealth" has never been 
simply and exactly defined; it is very doubtful 
whether it ever can be; its attempted scientific 
use, consequently, has been a great bar to the 
progress of this science. The word " Exchanges " 
and the word " Value " can be easily defined with 

1 Aiifangsgriinde der Volkswirthschaf t. Berlin, 1875. 



VALUE. 21 

scientific accuracy ; they exactly circumscribe the 
field of economical inquiries ; and Political Econo- 
my, accordingly, has passed out from the indefi- 
niteness that formerly beclouded it, and has come 
into a clear and definite field. 

In order to define these two words, and at the 
same time to throw a clear light upon the inmost 
nature of its facts. Political Economy finds it 
needful to use the word services in a broad 
sense, including both what we have called per- 
sonal services, and also every other economical 
rendering. A service in this broad sense, which is 
in no danger of being confused with the specific 
sense already explained, is the rendering of any 
thing for something in return. In this sense, the 
man who sells me a ton of hay, the second man 
who sells me ten shares of bank-stock, and my 
gardener who sets and tends the celery, all alike 
do me a service, and, in paying them, I do each of 
them a service in return. Buying and selling is 
nothing in the world but the rendering of mutual 
services ; and the beauty of the term " services " 
consists in this, that it always implies, (1) two 
persons, each of whom is reciprocally serving and 
served ; (2) two efforts, the effort of each person 
serving ; (3) two desires, the desire of each per- 
son served; (4) two things, the thing rendered 
by each person ; (5) two estimates, the estimate 
by which each prefers the thing offered by the 
other to his own thing offered ; and (6) two satis- 
factions, the satisfaction of each in the thing 
received. 



22 POLITICAL ECONOMY. 

Having now this term " services " witli its defi- 
nite economical meaning, we are able to define 
with precision the term " exchanges," and also the 
term " value," which latter, however, will require 
a further elucidation. Exchanges are the render- 
ing of mutual services. Value is the relation of 
mutual purchase established between two services by 
their exchange. It will be seen at once from these 
definitions, how indifferent it is, so far as meaning 
is concerned, whether Political Economy be en- 
titled the Science of Exchanges, or the Science of 
Value. There can be no value without exchange, 
and no exchange without value. Still, there are 
reasons why the latter definition is preferable. We 
need a general term corresponding to the old term 
" Wealth," but more definable and manageable 
than that. " Value " is such a term. We need a 
term, which, even in its etymology, shall clearly 
point to its own scientific meaning. Value is such 
a term, since it is derived from the Latin valere, 
which means to pass for, to be worth, so that the 
comparison, or relation, that is always involved in 
value, is present in the original meaning of the 
word. We need a term, whose own proper mean- 
ing completely circumscribes the field of the sci- 
ence. Value is such a term, since wherever value 
goes this science goes, and where value stops this 
science stops. Value is, accordingly, the funda- 
mental word in Political Economy. Its meaning 
must be perfectly apprehended at the outset of 
our studies. It is not accidental that this word 



VALUE. 23 

is the title of tliis opening chapter of our book, 
because to unfold this word in its scientific sense 
is the first thing that confronts us, and because 
by overmastering the difficulty presented by this 
word all after inquiries become comparatively 
easy. 

It is indeed true, that the word value is often 
used in another than the economical sense, as 
when we speak of the value of a good example, 
or the .value of practical religion to any commu- 
nity. In such connections, the word is used in a 
moral sense, which is not likely to be confounded 
with its scientific sense. Political economy has 
no occasion whatever to use the word in any other 
than the scientific sense, and so no confusion from 
this source need be apprehended. Adam Smith, 
who himself calls attention to the distinction 
between " value in use and value in exchange," 
in fact confuses the two senses, as has almost 
everybody else who has tried to use the word 
" wealth " in a technical sense ; but there is no 
need of this, since our science has nothing to do 
with " value in use," except to distinguish it 
sharply from value proper, that is, " value in 
exchange." 

If language were rich enough to give a sepa- 
rate word for each separate sense, a complaint 
might justly be raised against the economists for 
taldng as their foundation-word a word suscep- 
tible of another meaning than theirs ; but, fortu- 
nately, the poverty of language is accompanied 



24 POLITICAL ECONOMY. 

by no practical difficulty in this case ; for, if any 
one gains a firm conception of what value is in 
tlie strict sense, lie will not be troubled at all 
by the fact that some people use the word in a 
loose sense, any more than the banker is troubled 
in his use of the word " redemption " by the fact 
that the clergyman uses the same word in a very 
different sense. In this book, only one kind of 
value will be recognized or spoken of. If there 
be occasion, as there will be, to refer to what 
Smith calls " value in use," the word utility will 
always be employed to designate that. Even the 
adjective "intrinsic," that is sometimes applied 
to the value of the precious metals, will be avoid- 
ed as unnecessary and confusing. Value is value, 
and there is only one kind of it, and we must now 
get a clear and sharp conception, which we shaU 
never need to alter, of what it is, how it arises, 
and the causes that vary it. 

We have already seen, that, in every case of 
exchange, two desires of two persons are met by 
means of the exchange. But some of our desires 
are met without the necessity of making any 
exchange. Some very desirable things come to 
us freely. We pay nothing for them. For exam- 
ple, the air we breathe costs us nothing, though 
nothing can be more desirable to us. So the sun- 
light comes to us freely. The water we drink 
from the spring or brook is followed by no demand 
for a return, except a return of gratitude to God, 
which is not an economical rendering. For the 



VALUE. 25 

most part, the enjoyment of natural objects, such 
as landscapes, mountains, lakes, and ocean, comes 
to us freely. The songs of the birds and the 
blooms of the spring-time, which afford a very 
high pleasure to many, are gifts. All such things 
as these, which are capable of satisfying human 
desires, but which do not need to be paid for, are 
possessed of utility^ but value does not attach to 
them. Many useful things can be had for noth- 
ing, but a valuable thing can never be had for 
nothing, otherwise it would not be valuable^ that 
is, poised over against something else as a return 
for it. Utility is simple capacity to gratify any 
human desire whatsoever. Considered by itself, 
and separate from all human efforts, it is always 
free. It is God's gift to man. Value, on the 
other hand, is always connected with human 
efforts, and hence is never free. 

So far, the distinction between utility and value 
is plain enough ; but there is a further point in 
the matter that requires insight and carefulness. 
Utility is one thing, and value is a different thing, 
but utility is always present in every case of value 
also; that is to say, in each service rendered, 
whether it be a commodity, a personal service, or 
a claim, nature's gifts play some part, as well 
men's exertions. Take the public singer, as an 
example. Take Mr. Whitney, who has just sung 
the solos at the opening of the Centennial Exhi- 
bition at Philadelphia. He sings in concerts, and 
is paid roundly for his service. It is true, that he 



26 POLITICAL ECONOMY. 

has spent time, and money, and hard labor, in pre- 
paring himself to be a public singer ; but then, 
also, nature gave him a superb bass voice. His 
efforts have been combined with original gifts, 
and, as the result of the two, he offers to society 
a service of great value, that is, a service for which 
he receives large pay. Utility, which is nature's 
contribution, is always an element in services, as 
well as effort, which is man's contribution. 

Take a bushel of wheat. Man has labored to 
produce it, and he now sells it, but of himself 
alone he never could have made it. He availed 
himself by a series of efforts of the provisions of 
nature, and has wheat to sell. So of all commod- 
ities. Furniture is man's handiwork, but who 
furnished the oak out of which it is made? So 
too of all claims. New England railroad shares 
would scarcely be valuable at present, if the 
rivers and brooks had not been for ages wearing 
passages up to, and even over, the water-sheds. 
Mining stocks would be worthless if nature had 
not deposited the metals. Banks are the birth of 
business, and business is the outgrowth of natural 
advantages, and natural advantages are made use 
of by far-sighted and laborious men. Thus utility 
is the basis on which man works for the creation 
of value. The two become, as it were, com- 
mingled. All will allow at once that utility by 
itself is gratuitous : does it cease to be gratuitous 
after it has been united with the onerous efforts of 
men? Does the maker of the oaken chair, for 



VALUE. 27 

example, charge so much for the efforts of the 
men, who felled the tree, sawed the plank, carved 
the wood, finished the chair, and so much addi- 
tional for the original qualities of the oak ? 

This is a nice question. Political Economy 
asks and answers no more delicate and difficult 
question than this. The example of the oak chair 
will answer, perhaps, as well as any other to dis- 
play the principle that underlies all such cases. 
If there were but one oak tree, or a few, and if 
the durable and other excellent qualities of oak 
were well known, and oak chairs consequently 
were strongly desired in the community, I know 
of no economical force that would prevent the 
maker from realizing on his chairs a value out of 
all proportion to the onerous efforts involved in 
simply making them and bringing them to market. 
He might claim and gain something on the strength 
of what nature had done for the oak wood. There 
would be no competitor to offer chairs like his for 
a fair reward of the onerous human efforts involved. 
His offered service is unique. There are no other 
chairs like his. In that case, and in all similar 
cases, no market-rate is possible. Competition, 
which is the offer of a similar service, has no play. 
The return service demanded and received may 
be such as to imply both compensation for the 
human effort and for an original gift of nature. 
It is true that the qualities of the oak cost nothing 
to the maker of the chair, but he has become pro- 
prietor of those qualities, and there is nothing to 



28 POLITICAL ECONOMY. 

hinder him from asking 'something, and, so far as 
I can see, nothing to hinder him from getting 
something, on the ground of these gratuitous 
qualities. 

So it may be with a horse of very extraordinary 
speed, which it has cost no more to rear and train 
than other horses, which will fetch much less on 
sale. So it may be with any other unique prod- 
ucts, that happen to be in strong demand. The 
only practical limit on the return service rendered 
for such products is the willingness of the pur- 
chaser to pay, rather than forego the possession 
of the product. The principle is that of the 
auction-room rather than that of the market-place. 
Such products virtually go to the highest bidder, 
without any nice inquiries as to cost, or whether 
a free gift of nature is not influencing that which 
should only be influenced by the efforts of men. 

It is very plain, however, that such cases are 
relatively few and exceptional. As a matter of 
fact, there are a good many oak trees in a good 
many countries, and the unreasonable demand of 
any vender of oak chairs is met at once by the 
assertion that similar chairs can be had elsewhere 
of other venders for a less return. As a matter 
of fact, competition has play in respect to the 
great mass of all things bought and sold, and 
tends constantly- and effectually to crowd down 
the value of all things sold to the point at which 
a fair compensation is given for all human efforts 
expended, and nothing more. It is evident, that 



VALUE. 29 

God never intended that* His free gifts to mankind 
should be peddled out by chance proprietors for 
a personal reward. He has ordered it so through 
the very liberality of His bounty, that men can- 
not sell His gifts. The cupidity of one anxious 
to do this is thwarted by the readiness of others 
to dispose of a similar product for a reasonable 
compensation, that is, a compensation graduated 
to the actual human efforts expended on it. As 
a rule, therefore, while the utility of nature is 
always present as a part of that combined utility 
by which a service offered is fitted to meet some 
desire of the purchaser, and to call out from him 
a return service, it does not influence that return 
service to make it greater. It is eliminated by 
the action of competition from all effect upon 
value. 

This is a point of much importance, as we shall 
see more fully when we come to the value of land 
and of its products. The reason why that portion 
of the utility of any service that is due to the 
efforts of men cannot be eliminated from influence 
on value is, that the efforts are onerous, they will 
not be put forth except in view of a reward, and 
if a suitable reward does not come, the efforts 
themselves will cease. Value, then, as a general 
rule, and almost universally, has its origin, not in 
what God has done, but in what men have done ; 
and the value tends perpetually to be proportioned 
to the onerous efforts that have been put forth in 
connection with any service, provided only there 



30 POLITICAL ECONOMY. 

be a constant desire for such a service accom- 
panied by an ability to remunerate it. 

There is another reason less effective than com- 
petition, yet co-operating with it, why value hesi- 
tates to rise above the point that just offers 
compensation for the onerous elements in it, leav- 
ing no margin for the gratuitous elements, and 
that is, that the demand for any service is apt to 
slacken when a larger return is demanded, and 
is apt to quicken when a smaller return is de- 
manded ; so that, self-interest, a desire to dispose 
of one's services in a brisk market, leads him to 
disregard in his demand what has cost him nothing, 
that so he may the more readily get his pay for 
what has been onerous in the premises. We con- 
elude, then, in answer to the main question, that 
very little additional return is likely to be secured 
on the strength of original and gratuitous quali- 
ties. 

I believe that it is already growing clear to my 
readers, even before I have formally broached the 
point, that value is not a quality of any one thing, 
hut a relation subsisting between two things. It is, 
as the definition gives it, a relation of mutual pur- 
chase. Just before beginning to write this para- 
graph, some ten minutes ago, I bought a bunch of 
tacks and paid eight cents for them. The tacks 
have certain qualities of their own, that any one 
can ascertain by merely examining them. Their 
material is iron, they are about half an inch long, 
they are pointed at one end and flattened at the 



VALUE. 31 

other, and they are so made as to drive easily 
through a carpet into a floor, holding down the 
carpet above and inhering in the floor below. 
These qualities of the tacks, and many more, 
may be learned by a simple observation of them ; 
but the value of the tacks cannot be learned by an 
observation of them, for the reason that the value 
is not a quality of the tacks. No amount of study 
put upon the tacks themselves, no analysis of 
them, not even a complete account of their trans- 
formations and travels from the ore to the store, 
could ever reach the value of those tacks. Before 
it could be asserted that the tacks are worth eight 
cents, somebody must not only have made and 
transported them in the hope of getting something 
for them, but somebody else must also have 
desired the tacks, have estimated them in his 
own mind relatively to eight cents and preferred 
the tacks to the cents, and have given the cents 
for the tacks, the merchant meantime preferring 
the cents to the tacks and accepting them in pay 
for the tacks. Then, and not before, when some- 
body has given eight cents for the tacks, can the 
tacks be said to be worth eight cents. The mer- 
chant may have reckoned them at that, may have 
expected that they would fetch that, but could 
not say that they were worth that till the 
exchange was consummated. 

Value, strictly speaking, begins and ends in a 
mutual action of two persons, not in their mutual 
desires alone, nor in their mutual efforts alone as 



32 POLITICAL ECONOMY. 

represented in their respective services, though all 
these play a part preparatory to the realization of 
value. Value and the amount of value are the 
same thing. The value of any service is that 
other service that has just been exchanged for it. 
What is the value of the tacks ? Eight cents. 
What is the value of eight cents in this case? 
The bunch of tacks. It is just as true, and just as 
important, to say that the cents are worth the 
tacks, as to say that the tacks are worth the cents. 
In every case of value, one service purchases the 
other service ; and the only proper expression of 
the value of any thing is the other thing that is 
exchanged against it. As Mr. Macleod has well 
said, " The value of any economic quantity is some 
other economic quantity for which the first will 
exchange." The value of any specific service 
whatever is that other specific service whatever 
which the first will buy. But we need a scientific 
answer to the question. What is value ? as well as 
to the question. What is the value of any specific 
service ? To this question, the definition of value 
already given is the right answer. I believe that 
it is a perfect answer. I think it is the only 
answer ever given, that is at the same time sim- 
ple and scientifically complete. Value is the 

KELATION OF MUTUAL PURCHASE ESTABLISHED 
BETWEEN TWO SERVICES BY THEIR EXCHANGE. 

I hope that my readers will not be discouraged 
at all, because they find this one dijBficulty at the 
outset of this science, namely, that they must 



VALUE. 83 

always in all discussions about value think of two 
things, and two things in a relation with each 
other. Things in relation are not so easily con- 
ceived of and held in the mind as things by them- 
selves. One thing, as a horse, is easily thought of, 
and its qualities easily discovered and discussed. 
But value has no existence in connection with one 
thing, or one person ; and hence, it is a little hard 
at first to accustom the mind to hold steadily 
before it two things, two services, in a relation 
of mutual purchase, especially when one or both 
of the services are changing in their desirability, 
or difficulty of attainment. This obstacle is in- 
herent in the very nature of the subject. It never 
can be obviated, of course. But the mind can be 
gradually led up to it, can be enabled to see com- 
pletely around it, and in a little time can become 
so accustomed to it, that it shall cease to be any 
practical difficulty at all. Whoever will take 
pains to overmaster this at the beginning, to gain 
clearly and hold firmly the fundamental idea of 
value, will thereafter take positive pleasure in all 
economical discussions however elaborate ; and 
no one must be allowed to suppose that value is 
the only subject that begins and ends with a rela- 
tion. Marriage is a relation. A pastorate is a 
relation. Government itself is a relation. All 
attempts to study value comprehensively, that 
have regarded it as a quality of objects, rather 
than a relation of services, have partially and 
necessarily failed. 



34 POLITICAL ECONOMY. 

It follows from all that has been said, that value 
is not an attribute of matter, or of any form of 
matter. When commodities are offered for sale, it 
is indeed some material thing that is proposed to 
be rendered; and as the commerce of the world 
is largely in commodities, men came naturally to 
think that value somehow inheres in matter, that 
value resides in material forms as material. This 
is a great mistake, as I will proceed to show. I 
notice in the paper to-day, that silver is quoted in 
the London market as selling at 611 pence per 
ounce. Silver usually sells in that market at about 
60 pence per ounce. But an ounce of pure silver, 
so far as matter is concerned, is the same thing 
year in and year out, century in and century out. 
Its weight is the same, its specific gravity is the 
same, all its chemical and visible properties are the 
same. If then, value be an attribute of matter, 
the value of silver ought to be constantly the 
same. But it is not the same, either as compared 
with gold, as in the given case, or as compared 
with other things. Just now, silver is very cheap 
all over the world, owing partly to the fertility of 
the mines, and partly to the fact that some leading 
nations have changed their money-standard from 
silver to gold, and have consequently silver to 
sell, which lowers the value of silver in accord- 
ance with a principle soon to be explained. Cir- 
cumstances may be easily supposed, and have 
often occurred, under which an ounce of silver 
would fetch nothing at all. During the plague in 



VALUE. 35 

London, in 1665, according to the description of 
Daniel Defoe, it would go hard to sell an ounce of 
silver, or even things ordinarily much more valua- 
ble than that. 

What is true of silver, is just as true of gold, 
and still more true of most other material com- 
modities. A sudden change in the fashion, for 
example, will frequently take away at a stroke 
one-half the value of goods, that were fashionable 
but are so no longer. The matter is all there, 
and the form of the matter is all there, but the 
value is one-half escaped. If value be so loosely 
connected with matter even in commodities, 
which always have a basis of matter, how 
almost independent of matter must it be in the 
second and third classes of salable things, namely, 
in personal services and claims, which are only 
remotely related to matter, or not at all ! Concert 
tickets, for example, for which five dollars apiece 
are eagerly paid, or the good-will of a business, 
which is something still more intangible, have 
little or nothing to do with matter, and show that 
persons with their various capacities and changing 
choices are quite as much a factor in economical 
discussions as dead matter and its forms. 

We must now trace the rise of value as it comes 
before us practically in e very-day life. Animals 
do not exchange ; there is no evidence that angels 
do; but men have always been exchangers, are 
now, and always will be ; and we can see that 
value has its birthplace in the Desires of Men. 



36 POLITICAL ECONOMY. 

Some of the natural and acquired desires of all 
persons are satisfied through the bounty of Nature, 
and others of them are satisfied through the gifts 
of friends, but there are stUl others of them that 
can only be satisfied through exchanges. It is 
the desire that first points to the exchange. Clearly, 
if a person does not desire something, he will not 
buy it, that is, render something else in exchange 
for it. If his desire for it be feeble, he will be 
willing to render but little in exchange for it ; if 
his desire for it be strong, and not counterbalanced 
by the desire for something incompatible with his 
obtaining it, he will be willing to render much in 
exchange for it ; if his desire for it cease, the ex- 
change will certainly not take place. This play 
of human desires, out of which value takes its 
rise in every case, makes it needful to one, who 
would be successful in offering his services to 
society, to study human nature well, to observe 
the current of desires in the line of his trade, to 
anticipate so far as possible the changes in these 
desires, and to adapt his services, whether they be 
mediated through commodities or not, both to 
the present and to the prospective desires of his 
customers. 

Exchange affords abundant opportunity for the 
exercise of intellectual powers. It is no dead 
level of sluggish uniformity. It is a sea with 
currents and tides and waves. Observation, 
adaptation, invention, caution, enterprise, and 
many other high qualities, have room and verge 



VALUE. 37 

enough in the attempt to meet at the right time 
and in the right measure these varying desires of 
various men. Some classes of desires, such as 
those for food, for houses, for the education of 
one's children, are steadier, and hence can be 
better calculated upon, than other classes of de- 
sires, such, for example, as those of clothing, of 
ornamentation of all kinds, of equipage, and so on. 
As society advances, the desires of men that can 
be met through exchange become more numerous 
and delicate, and ten thousand services are now 
offered and accepted that were never thought of 
in the days of old. Moreover, the desires of men 
are of such a nature — so capable of increase in 
number and degree — that there never can be a 
general glut of services offered, because all the 
desires of all men never can be fully met. Ex- 
changes, therefore, can go on without ever a fear 
that the ultimate goal will be reached. A partial 
glut of services there may be, that is to say, cer- 
tain services of a certain kind may be offered at a 
certain time and place more than sufficient to 
meet the desires of the men then and there for 
such services. This often happens. 

The offer of print-goods in this country at pres- 
ent is more than sufficient to meet the desires of 
our people for this class of goods, at least, more 
than sufficient to call out from them in return 
remunerative services ; but a vent for our prints is 
found in foreign countries nevertheless. A mis- 
calculation upon desires is possible ; but an over- 



38 POLITICAL ECONOMY. 

supply for all the desires of all men everywhere is 
impossible ; and consequently, value, which has its 
starting-place in these desires, great as is the part 
it plays at present, is destined to play a greater 
and still greater part in the future. Wherever, 
and so long as, there is a desire in a human breast 
that can be met through some exchange with an- 
other person, there, and so long, value is possible, 
and is likely to be realized. 

It will not be realized, however, unless somebody 
puts forth an Effort to gratify that desire. Mere 
effort in itself, mere work, mere exertion of muscle 
or mind, will not issue in value, any more than 
the mere indulgence of desires will issue in value. 
" If wishes were horses, beggars might ride." It 
is the effort adapted to satisfy the desire of an- 
other person, the effort put forth for that purpose, 
and accepted to that end by that person by his 
rendering to the first a corresponding effort 
adopted to gratify his desire, that issues in value. 
Value is the offspring of the marriage of certain 
efforts with certain desires. A great many efforts 
of all men, just as a great many desires of all 
men, come forth without any reference to the 
desires of others in the one case, or to the efforts 
of others in the other case. Many efforts are put 
forth for personal gratification merely, as when a 
musician plays for his own amusement, or that of 
his friends. Other efforts are constantly put 
forth, that were expected to issue in value, but 
do not, because there was a miscalculation upon 



VALUE. 39 

the desires to be gratified through such efforts. 
For example, some railroads are built that pay no 
dividends, because there is less freight and less 
travel than was expected. 

Still, when one looks out upon society, the most 
striking thing about it is, the assiduity and success 
with which efforts of all sorts are put forth by 
each sort of people to meet the desires and ex- 
change against the efforts of other sorts of people. 
Society is one hive of buyers and sellers. Almost 
everybody, paupers and prisoners excepted, brings 
something to the market, and carries something 
off. To be successful, efforts must be skilful ; in 
order to become skilful, persons must devote 
themselves to one employment, or at least to very 
few; hence, the diversity of avocations, what is 
called " the division of labor ; " hence, also, by 
concentration of attention and constant practice, 
men come to be able to offer skilled services, each 
along his own line ; these services come to be 
desired by those, whose attention and practice 
have been called in other directions, and who 
consequently can be better served in these matters 
than they can serve themselves, and who, in turn, 
in consequence of their own training, can render 
better services to the first in other matters^ so 
that, through skilled efforts, all adapted to gratify 
the desires of somebody, exchanges are multiplied, 
value is realized, and the happiness of mankind 
immeasurably augmented. 

It will now be plain to my readers, — and the 



40 POLITICAL ECONOMY. 

point is very important, — that all value, through 
mutual desires and mutual efforts, proceeds upon a 
diversity of advantage as between different men in 
different respects. For example, there are at this 
moment three men engaged in painting the exterior 
of my house, and I am to pay them for their service 
out of the proceeds of my service as a public 
teacher. If they could teach as well as I can, and 
I could paint as well as they can, it is perfectly 
certain that they would not now be painting for me. 
I have an advantage over them as a teacher, because 
I have devoted myself for many years to that art, 
have in consequence acquired a certain skill in it, 
and am able to demand for my services a reasona- 
ble salary ; on the other hand, they have an ad- 
vantage over me as painters, because it is their 
trade. They can paint better than I can; and, 
therefore, I hire them to paint my house ; and I 
rely upon another exchange, namely, the one I 
make with my employers, to obtain the means of 
completing this exchange, that is, to pay my paint- 
ers. The success of one exchange is always a 
path to other successful exchanges. Now, it is no 
disadvantage to me that they have an advantage 
over me as painters, and it is no disadvantage to 
them that I have an advantage over them as a 
teacher ; on the contrary, the more they surpass 
me as painters, the better for me, — I get a better 
service ; and the more I surpass them as a teacher, 
the better for them, — I am more likely to ex- 
change with them, because I am thereby better 



VALUE. 41 

able to pay them for their service. From this 
example, which is a sample in this respect of all 
exchanges, we get this principle ; — The greater the 
diversity of relative advantage as between the parties^ 
the more profitable do exchanges become. 

This principle may be illustrated arithmetically. 
Suppose a shoemaker has an efiSciency in his own 
trade which we will call 6, which has not hereto- 
fore been increased, because he has also made his 
own and his children's clothes, having an efficiency 
in that subordinate trade which we will call 5. 
Suppose also in the same community a tailor, who 
can make clothes with an efficiency of 6, but who, 
instead of exchanging with the shoemaker, has 
thus far made his own and his children's shoes 
with an ability of 5. As shoemaker and tailor, 
there is a diversity of advantage between them of 
2, sufficient perhaps to justify an exchange, while 
it is certain that there could be no exchange 
except for this diversity, such as it is. Suppose 
now, that each, under the encouragement of pro- 
spective exchanges, devotes himself wholly to his 
own trade, and, by concentrated attention and 
constant practice and possible inventions, carries 
up his efficiency to 15, the ability of each in the 
trade of the other remaining, as before, at 5. 
Now, when they come to exchange, the diversity 
of advantage between them is 20 instead of 2. 
The motives for an exchange, and the gains of an 
exchange, are ten times greater than they were 
before. Not only can they serve each other a 



42 POLITICAL ECONOMY. 

great deal better than before, but tbey are now in 
position, owing to tbeir increased skill, and the 
new rapidity with which they can turn off work, 
to .offer their services to many more parties than 
before, who will now share in the benefit, and 
who, if, in the mean time, they have been acting 
similarly, will in turn confer a new benefit upon 
these. 

The result of a greater diversity of relative 
advantage as between exchangers, accordingly, is, 
that the quality of the services is improved, and 
also, that the number of possible services is multi- 
plied. In the light of this principle, how petty is 
the jealousy that pines over the superior eminence 
of any individual in his industrial or intellectual 
pursuits ! The higher he has carried his profi- 
ciency in his own art, the better and the more 
services he can proffer, and aU who come into 
relations of exchange with him share in the profit 
of his superiority ; and, if they will only be stimu- 
lated by his success to carry their own advantage 
over him in their art to the highest point, the 
profit then becomes mutual and the highest possi- 
ble. Exchange rejoices in all excellence in any 
direction, and especially in excellence in all direc- 
tions, because thereby its gains become larger and 
more universal. 

Even if others in the community stupidly hold 
on to old methods, when improvements might be 
made, they are nevertheless benefited by the enter- 
prise of any one who pushes on improvements in 



VALUE. 43 

his own craft, unless, indeed, he practises the 
same occupation with themselves, in which case 
he will draw away some of their business from 
them, and, so far, harm them. Nobody can justly 
pity them, however ; their loss results from their 
own want of spirit. Our former supposition a 
little modified will show just how the principle 
works in practice. The shoemaker, not encour- 
aged by a corresponding vigor on the part of the 
tailor, nevertheless carries up his own efficiency 
to 10, his ability in making clothes and the tailor's 
ability in both trades remaining as before. If the 
two exchange, there is now an aggregate advan- 
tage of 6 to be divided between them. The 
exchange is three times as profitable as it was at 
first, owing to the progress of only one of the 
parties. The other should have kept up. If he 
had to the same degree, the exchange would have 
been five times as profitable as at first. The prac- 
tical inference from this is, that everybody, Avho 
improves his capacity in his own avocation, bene- 
fits his fellow-men, as well as himself; although 
the highest possible benefits of exchange are condi- 
tioned upon improvements going on among all the 
exchangers. If there is no diversity of relative 
advantage, there is no motive for any exchange, 
and of course no exchange ; if there is great 
diversity, there can be a very profitable exchange ; 
and, therefore, each man may as rationally rejoice 
over the superiority of his neighbors to him in 
their business, as over his superiority to them iu 



44 POLITICAL ECONOMY. 

his own. The time has now gone by, the world 
has grown too intelligent, to tolerate the animosi- 
ties and restrictions that used to spring up in view 
of the enterprise and progress of others. Values 
grow big just in proportion as individuals and 
nations mutually surpass each other at different 
industrial points. 

Having established this principle, to which we 
shall have to recur further on, we pass next to 
look at the mutual Estimates, which men always 
make before they trade with each other. Of 
course, the ground on which they trade is self- 
interest. No other motive than self-interest is 
appropriate in the premises. Men often give fjom 
the impulse of duty — they never trade except 
from self-interest. In the sphere of morals, "It 
is more blessed to give than to receive." In the 
sphere of exchange. It is more blessed to receive 
than to give ! It is no gain for morality to dis- 
guise the truth that men trade for their own 
advantage, or to try to mingle things so distinct 
and incompatible as charity and commerce. God 
is indeed the author of economical laws just as 
much as of the moral laws, although they are less 
a matter of express legislation, because they are 
in a lower sphere and less essential to men's 
welfare." It is necessary for men to be good, but 
it is not necessary for them to be rich. Besides, 
it is more natural for men to trade, than to fulfil 
their moral obligations. Both sets of laws, the 
moral and the economical, work together for the 



VALUE. 45 

benefit of mankind, only they work in quite differ- 
ent ways. Men are to be good, and to do good, 
because they ought to do this : men are to trade 
because it is for their advantage to do so. No man 
was ever yet under a moral obligation to make an 
exchange, because, by the very definition of an 
exchange, it is made with a view to the economical 
return. As exchangers, men are under the moral 
laws, because they are mew, not because they are 
exchangers. Men must be honest in all things, 
including exchanges, if they make them, because 
this is rights but it is wholly a matter of their own 
choice, to be decided in view of self-interest, 
whether they make them, or not. Exchange is a 
sphere, all whose operations are under the sur- 
veillance of conscience of course, but it is not, 
and never was designed to be, a sphere of benevo- 
lence. It is a sphere of gain only. The popular 
notions concerning this point are so loose, that it 
is worth while to clear it up once more, although 
even the apostle Paul draws a sharp distinction 
between the " spiritual things " and the " carnal 
things." 

Now, the estimate that each person puts upon 
what he receives in an exchange is greater than 
the estimate he puts upon what he renders, other- 
wise he would not render it. He may be mis- 
taken in the utility to himself of what he receives, 
and he may be mistaken in what would be the 
utility to himself of what he renders in case he 
retained it, — exchanges are sometimes disappoint- 



46 POLITICAL ECONOMY. 

ing to one or both parties owing to misapprehen- 
sions or miscalculations — but generally they are 
not. The mutual estimates prove to be correct ; 
and the difference between the estimate of what is 
rendered and the estimate of what is received is 
the measure of the gain of the exchange. 

These estimates are mental processes. The 
minds of most men derive their chief development 
in connection with the necessity and the habit of 
making these estimates. Mercantile sagacity con- 
sists largely in the ability to make these estimates 
quickly and accurately ; and in times of general 
depression of business, like the present, when the 
current gains of exchanges are small, and when 
it is the question with many whether or not to 
continue their industrial enterprises, this ability is 
what makes the difference between a continuous 
success and an abrupt failure. Shall I buy it at 
all ? What grade shall I buy ? What quantity 
shall I buy ? What price can I afford to give ? 
What price am I likely to get for my own prod- 
uct, the proceeds of which must pay for this prod- 
uct? These questions, and questions like these, 
enter in as elements into the estimates that inva- 
riably precede exchanges. The necessity of asking 
and answering them keeps the minds of men on 
the alert, obliges them to consult sources of infor- 
mation, induces them to j-ead, compels them to 
reflect, stimulates conversation, and in various 
other ways helps to educate individuals, and to 
keep society from stagnation. To know when not 



VALUE. 47 

to buy, as well as when and where and how to 
buy ; to learn to know the present, and as far as 
possible to anticipate the prospective, purchasing- 
power both of one's own product about to be 
parted with and of another's product about to be 
received ; to come into an apparent or real colli- 
sion of interests with other men, and hold one's 
own of temper, of judgment, and of property, in 
the struggle ; — all this is a part of the good disci- 
pline that Exchange offers to almost all men. 

It is true, that many men fail in this matter of 
making proper estimations, and, consequently, 
they " fail " in business, or fall into hopeless 
debts ; but it is nevertheless true, that the meth- 
ods of exchange are in their nature not random 
but rational ; they imply in their groundwork the 
intelligence of God, and in their practical working 
the intelligence of men ; and no exchanges are 
properly made except those preceded by the delib- 
erative action of two minds, each of which con- 
cludes, on grounds of rational probability, that 
what is about to be received is of more conse- 
quence to the recipient than what is about to be 
rendered. This is enough for the present about 
estimates. 

The last element in this series, and the one 
pleasantest to discuss, is the resulting Satisfac- 
tions. These lie in the regions of the Sensibility, 
as the estimations lie in the region of the Intellect. 
Desires are followed by efforts, and efforts by esti- 
mations, and estimations by an exchange, and the 



48 POLITICAL ECONOMY. 

exchange by satisfactions ; and thus tne Sensibili- 
ty, that gives rise to tbe desires, becomes also the 
seat of the ultimate satisfactions. The Intellect 
and the Will intervene in their action between 
the original desire and the subsequent satisfaction. 
Thus all the parts of our nature are involved in a 
single act of exchange ; and Political Economy, 
which is a science by itself, recognizes and rejoices 
in all the other sciences, and particularly in those 
sciences, which, like itself, find their culmination 
in man. In the first detailed commercial transac- 
tion on record, which was the purchase by Abra- 
ham ^ from the sons of Heth of the field and cave 
of Machpelah for four hundred shekels of silver, 
any one skilled to read between the lines may 
easily discover the evidence of the satisfaction of 
the patriarch through the copiousness and itera- 
tion of the details, when it is said, " the field and 
the cave which was therein, and all the trees that 
were in the field, that were in all the borders 
round about, were made sure unto Abraham for a 
possession, in the presence of the sons of Heth, 
before all that went in at the gate of his city." 
A little after, as if loath to leave them, the main 
features of the bargain are repeated ; — " And the 
field, and the cave that is therein, were made sure 
unto Abraham for a possession of a burying-place, 
by the sons of Heth." Some of the circum- 
stances of this purchase were of the saddening 
sort, — it was the purchase of a tomb and its envi- 

1 See Gen. xxiii. 3-20. 



VALUE. 49 

rons as a last earthly resting-place for himself and 
for his family, — but his satisfaction in the pur- 
chase is most evident, a satisfaction that has jus- 
tified itself in the probably inviolate sacredness of 
the tomb from that day to this,^ and in the venera- 
tion with which Israelite, Mussulman, and Chris- 
tian alike, even now draw near to the mosque at 
Hebron. 

This incidental reference to Abraham makes 
natural an additional word or two respecting the 
alleged fondness of the Jews for bargains of all 
sorts. If they be fonder than other people are of 
a good trade, something may perhaps be said in 
the way of explanation of it. The national trait, 
if it be one, certainly goes back to the founder of 
the nation. Long before the transaction just 
mentioned, Abraham, though a double exile, is 
said to have departed out of Egypt " very rich in 
cattle, in silver, and in gold." Isaac, though his 
life was quieter, was obviously not less an accumu- 
lator ; for he " sowed in that land, and received 
the same year a hundred-fold, and the Lord blessed 
him, and the man waxed great, and went forward, 
and grew until he became very great, for he had 
possession of flocks and possession of herds and 
great store of servants, and the Philistines envied 
him." Jacob also, the third in the line, was a 
consummate trafficker, not to say trickster, in his 
bargains ; and thus the pitch seems to have been 

1 See Dean Stanley's Lectures on the Jewish Chiirch. Appen- 
dix. 



50 POLITICAL ECONOMY. 

gWen by the patriarchs to the song sung by the 
Jews ever since. They have come honestly, that 
is, through inheritance, by their tendencies to 
traffic. Moreover, the disabilities they have been 
put under by the laws of most European countries, 
such as those forbidding Jews to hold landed 
estates, and so on, (even Magna Charta forbids 
the debts due by wards to Jews to bear any in- 
terest,) may have driven them more to become 
peddlers, merchants and bankers, and thus to 
exhibit their mercenary spirit in a more conspicu- 
ous way. 

But it may be questioned, after all, whether the 
Jews take more satisfaction in exchanges than 
other people. Everybody likes to trade. The 
satisfaction from a fair bargain is legitimate and 
universal. An intelligent exchange is in every 
case the gratification of two human desires. The 
boy with his new top, and Vanderbilt with his 
new steamship, present the same phenomenon ; 
and the satisfaction of the shopman who sold the 
top, and of the contractor who furnished the ship, 
is just as real as theirs. Neither party to an ex- 
change is more recipient than the other, since 
they are both reciprocally recipient ; and neither 
has a better right to a satisfaction than the other, 
since both have parted with something reciprocally 
less esteemed for the sake of receiving something 
reciprocally more esteemed. Thus the happiness 
of the world, — the satisfaction of the world's 
innumerable desires, — not to speak of the power 



VALUE. 61 

of the world, and the progress of the world, all 
which are indeed the same thing in different 
aspects of it, is constantly and increasingly minis- 
tered unto by means of exchanges. The satisfac- 
tion is that for the sake of which the exchange is 
had, for the sake of which it was prepared for 
perhaps years aback, and in the realization of 
which it finds its sole purpose and end. The 
present exchange is for the present satisfaction, 
though to make ready for the present exchange 
many men may have long been toiling. As 
Whittier sings to the shoemakers : — 

" For you, aloug the Spanish main 

A hundred keels are ploughing; 
For you, the Indian on the plain 

His lasso-coil is throwing; 
For you, deep glens with hemlock dark 

The woodman's fire is lighting; 
For you, upon the oak's gray bark, 

The woodman's axe is smiting. 
For you, from Carolina's pine 

The rosin-gum is steahng; 
For you, the dark-eyed Florentine 

Her silken skein is reeling; 
For you, the dizzy goatherd roams 

His rugged Alpine ledges; 
For you, round all her shepherd homes 

Bloom England's thorny hedges." 

There is one important inference to be drawn, 
in passing, from the general point last established. 
If satisfactions are the goal of exchanges, then, to 
try to stop exchanges is to try to destroy satisfac- 



62 POLITICAL ECONOMY. 

tions. The only motive that leads men to trade 
is to better their condition, is to increase the sum 
of their happiness, and if governments, under a 
mistaken notion of their functions, undertake to 
prohibit trade, or to burden it by throwing arti- 
ficial obstacles across its path, the effect is and 
must be from the nature of the case to lessen 
human happiness, to weaken human power, to 
retard human progress. He is an enemy to the 
human race, and flings himself into the face of 
Providence, who, for ends of his own, undertakes, 
by means of the action of government, to prevent 
exchanges which would otherwise take place. He 
thereby undertakes to annihilate satisfactions 
which would otherwise take place. 

The exceptions to the noble principle of free 
exchanges are so few and petty that one is almost 
ashamed to put them down alongside of the prin- 
ciple itself. The father, for example, may properly 
enough restrain his boy in his eagerness to engage 
in boyish traffic until his mind is sufficiently 
trained to make relatively just estimates respecting 
the things to be bought and sold ; though a wise 
father will give his boy considerable liberty in 
his tentative trials of skill in bargaining, since he 
will learn skill through his own mistakes and 
losses. Governments may properly enough re- 
strain exchanges whenever it becomes needful to 
do so in the interest, first, of public health ; second, 
of public morals ; and third, of public revenue. 
Health, morals, and revenue ; — these are all 



VALUE. 63 

higher considerations than the gains of individuals, 
and the latter must give way to the former. The 
law may prohibit the selling of tainted meat for 
health's sake, of obscene publications for morals' 
sake, and of " crooked " whiskey for revenue's 
sake ; but all these, and all such as these, are but 
as a drop in the bucket to the mass of things 
purely and properly commercial. I do not think 
of any other exceptions to the right of free ex- 
change in time of peace. If governments go 
beyond this, and try to give commercial reasons 
for interfering with commerce., they go beyond 
their depth, and go to the bottom. This point 
will be taken up again in the chapter following 
the next. It is enough to say at present, that, as 
exchanges find their only aim in human satisfac- 
tions, the exchanges themselves, with the slight 
exceptions noted, should be everywhere untram- 
melled. 

We have now gained a general idea of what 
Value is, and of the circumstances under which 
it arises. It is clear, that there is no inherent 
quality called value in any thing, any more than 
there is an inherent quality called size in any 
thing. Value, like size, is relative, is the result of 
a comparison. Can value, like size, be measured? 
Is there any external standard, by means of which 
the value of purchasable things in general may be 
ascertained, just as the dimensions of physical 
things may be ascertained by an external standard 
like the French metre? It has often been sup- 



64 POLITICAL ECONOMY. 

posed that tliere must be such an external stand- 
ard, and economists have expended a great deal 
of ingenuity in trying to find out what it is. Mr. 
Ricardo contended that the value of any thing is 
measured by and constituted of the quantity of 
labor necessary to produce or obtain it. Mr. Mal- 
thus contended on the other hand that value con- 
sists in and is measured by the quantity of labor 
that the thing can command as- an article of ex- 
change. Adam Smith, though not always con- 
sistent with himself, seems to think that corn is a 
better measure of general exchange value than 
labor, or even coin. Mr. Mill, and many others, 
regards the cost of their production as the best 
gauge of the value of valuable things. Mr. Carey 
thinks that he makes a great advance upon this, 
when he affirms, that it is the prospective cost of 
their reproduction that is the measure of the value 
of salable things. 

All of these opinions imply more or less of mis- 
apprehension as to the nature of value, both in 
supposing that tangible tilings alone have value, 
and that value is somehow or other a quality 
wrapped up in these commodities. Indeed, it is 
difficult, or impossible, to use language that is free 
from all implications of this sort. Language is 
formed for popular, not scientific, use ; and every 
writer is obliged more or less to employ words 
that have already acquired significations, or at 
least, implications, adverse to a strict scientific 
conception. It is not strictly accurate, for exam- 



VALUE. 55 

pie, to say that any thing has value, for that im- 
plies that value is a quality of the thing itself, 
whereas it is only a transient relation which that 
thing holds to other tilings which it will buy, and 
which at the same time will buy it. So, also, we 
sometimes speak of value as purehasing-power re- 
siding in this or that. Such language is illusory, 
though we cannot, perhaps, always avoid using 
it. I promise my readers, however, that, if they 
will be both careful and patient, I will give them, 
by means of the best words our language affords 
for our use, not only a clear conception of what 
value is, but also a clear conception of the only 
sense in which it can be said that there is a meas- 
ure of value. 

As the measure of lengths must itself have the 
attribute of length, (the metre is 39.37079 inches 
long,) and the measure of capacities be itself pos- 
sessed of capacity, (the litre contains 61.02705 
cubic inches,) so, clearly, if there be a measure of 
values, it must be some valuable thing. If value 
is a relation of mutual purchase, then the meas- 
ure of values must be capable of standing in a 
relation of mutual purchase with all other pur- 
chasable things. If it pretend to be a universal 
measure of values, then it must be universally 
acceptable in an exchange for other things. But 
the value of the measure of values must in any 
case arise just as all other value arises, namely, it 
must be the object of desires, the subject of 
efforts, the target of estimates, the cause of satis- 



56 POLITICAL ECONOMY. 

factions. From tlie very nature of value itself it 
is impossible that there should be a perfect meas- 
ure of values, inasmuch as the measure, which 
must be valuable, is subject to the causes which 
vary more or less all other values. There is noth- 
ing, men's desires for which are always uniform, 
efforts to procure which are always equally oner- 
ous, estimates in relation to which are always the 
same, and satisfactions arising from the possession 
of which are always equally great. Therefore, a 
perfect measure of values is impossible to be 
found, and would never have been sought after, 
had the nature of value been fully understood. 

Much can be said in favor of each of the above- 
alleged measures as a kind of index to the 
probable value of many salable things ; that is to 
say, if it be known, how much of labor a thing 
has cost or will now command, how much of corn 
or coin it will now buy, what its cost of produc- 
tion has been in money, or what will be in money 
the cost of the reproduction of similar things, a 
sort of rough guide is thus obtained to the power 
of that thing to purchase things in general. It is 
in this sense only that there can be any such thing 
as a measure of value. 

In the chapter on Money we shall have occasion 
to ascertain the important fact, that gold is the 
best attainable measure of value in the sense 
already explained, because there is nothing else 
so generally desired by men, nothing else secured 
at all times by such approximately equal efforts^ 



VALUE. 57 

consequently nothing else so likely to be uni- 
formly estimated as over against other things, and 
consequently also nothing else so likely to give 
satisfaction in its possession through its command 
over other satisfactions. To say that gold is the 
best attainable measure of value is only to say 
that its own value is steadiest. Whenever any 
service is sold for money, the amount of monej'' 
obtained for it is called its Price. Value and 
Price must be carefully distinguished in the mind 
of every student of Political Economy. The 
value of any service is its power to command, that 
is, to buy, all other services ; the price of any ser- 
vice is its power to command, that is, to buy, 
money. There can be no general rise or fall of 
values, because, if some services rise in value, that 
means that other services for which these ex- 
change have fallen in value. To say, for example, 
that horses have risen in value, is only to say that 
they will buy more of other things than formerly, 
which is only to say that those other things will 
buy fewer of horses than formerly, so that, if 
horses rise, other things fall as compared v/ith 
horses, and accordingly a general rise in value of 
all things is a contradiction in terms. Some 
things may rise in value, but if they do, some 
other things must correspondingly fall in value. 
A fall in value of certain things implies of course 
that certain other things will buy more of the first 
than before, that is, have risen in value. 

Value is not only a relative term implying a 



58 POLITICAL ECONOMY. 

comparison, but is also a general term implying a 
comparison with all other valuable things. The 
value of a watch, for instance, never can be com- 
pletely stated, because that would require a com- 
parison of the watch with all other salable things 
whatsoever, and a statement in the terms of those 
things how many of them or what part of them 
the watch will buy. This inconvenience, which 
always exists under the form of trade called Bar- 
ter, is removed by reducing value to price. Priee 
is the value of any thing expressed in money. By 
knowing how much money any service will fetch, 
it is easy to compare all other services with that. 
Money becomes the standard of value, to which all 
purchasable things are referred, and by means of 
which they are brought into easy numerical rela- 
tions with each other. So soon as it is ascertained 
that the watch is worth $100, its relations of value 
to all other things whose price has also been ascer- 
tained become simple enough. Price is indeed 
only a case under the class Values, but practically 
it becomes a very important thing in Political 
Economy, because the value of almost all ex- 
changeable things is determined through price. 
So far as commodities, personal services, and 
claims are exchanged against each other directly, 
without the intervention of money or the use of 
the denominations of money, price plays no part 
though value does, but these cases are few and in- 
significant as compared with the whole. 

It is hardly necessary to add, that price, though 



VALUE. 69 

relative, is specific and not general, and conse- 
quently that there may be a general rise or fall of 
prices. If the money of a country become rela- 
tively more abundant than before, general prices 
will rise in that country for reasons already made 
apparent; and when the money becomes less 
abundant, prices will fall for corresponding rea- 
sons. In this country, since 1862, the general 
range of prices has been high, at times very 
high, solely on account of the state of the na- 
tional money. Things have exchanged against 
each other about as before — values have not 
risen — but as exchanged against money, owing 
to the quantity and quality of that, prices have 
been high. Lately prices have fallen, and at 
present are falling, because the national money is 
somewhat less in quantity and hopefully better in 
quality. " A falling market " is an expression 
which implies that money is for some reason in 
greater request than before. The subject of 
prices will be better understood in the light of our 
subsequent discussions of Money, but we must 
now conclude the direct discussion of Value by 
unfolding the great law that underlies it. 

This law is commonly and properly called the 
Law of Demand and Supply. It is the most com- 
prehensive and beautiful law in Political Econo- 
my. We must first define our terms. Demand is 
the desire of purchasing something coupled with the 
power of purchasing it. The demand for any ser- 
vice is usually expressed by the offer of money 



60 POLITICAL ECONOMY. 

wherewith to pay for it, or by the promise express 
or implied to pay the money at some future time, 
but a demand may be constituted by the offer of 
any other exchangeable thing besides money. 
Demand expresses the element of desire as meas- 
ured by the effort involved in what is offered as 
pay. Mark Lane, London, is a great European 
market for grain. The demand in that market on 
any one day is constituted by what is virtually 
offered that day in pay for the grain then and 
there offered for sale. Supply is any class of ea>- 
ehangeahle things offered for sale against money, or 
other exchangeable thing. In common commercial 
language, the money or its equivalent offered in 
the market for commodities, services, or claims, 
constitutes the demand for them, while the com- 
modities, services, and claims are a supply in 
reference to that demand ; but it must always be 
remembered, that, in reality, some commodities, 
services and claims are a demand in relation to 
others, which thereby become a supply in relation 
to them. In other words, a market for products 
is products in market. Money itself is always 
either a commodity or a claim ; and whoever has 
salable things of whichever kind to dispose of, 
need have no fear but he can buy whatever he 
wants, either through the intervention of money, 
or without it. 

Still, it is less confusing to unfold and to under- 
stand the law of supply and demand under the 
ordinary commercial terms, and afterwards at our 



VALUE. 61 

leisure to give to the law its utmost possible gen- 
erality. This method will lead us astray at no 
point. Let the article be wheat in the market of 
Milwaukee. There is much wheat in stock, and 
many buyers representing many cities and distant 
lands. Let us first follow the action of Demand 
as affecting the value of the wheat in stock with- 
out reference to any change in the Supply of 
wheat. The buyers want wheat, and have money 
to offer for it ; the sellers want money, and have 
the wheat to give for it. What now will deter- 
mine the price of wheat? The buyers have a 
desire for wheat, but it is not an unlimited desire. 
The money they must give for it represents an 
onerous effort already expended. They begin 
their estimates. Some of them may desire the 
wheat more than others, but there is a limit be- 
yond which no one of them will go. Suppose 
that limit to be 80 cents a bushel. The price can 
by no possibility rise above that. The most san- 
guine buyer concludes that at 80 -f- he cannot dis- 
pose of his wheat with a profit, and 80-}-, there- 
fore, becomes an impossible price. At 80, he may 
take some, if he cannot get it for less. 

But the sellers have been making their esti- 
mates, too. Some are more anxious to sell than 
others, being in greater need of the money, but 
there is no one among them who will at present 
dispose of his wheat for less than 70 cents a 
bushel. He is bound to get as much more than 
that as he can, but lower than that he will not go. 



62 POLITICAL ECONOMY. 

The wheat represents to him an effort already- 
expended, and 70 — does not in his judgment 
represent an effort equivalent to that, and 70 — , 
accordingly, becomes an impossible price in that 
market at that time. Between 70 and 80 the price 
may fluctuate, — what will determine the price ? 
The competition as between the buyers on the one 
hand, and the competition as between the sellers 
on the other hand, will determine it. Suppose the 
first sale be at 72, a figure that the buyers regard 
as very favorable to them, and they show a readi- 
ness to buy largely at that rate. The sellers ob- 
serve their quickness of offer, and are prompt to 
take advantage of it. They allege that 72 is a 
ruinous price for them, that the man who took 
that was under stress, that 74 is the least the 
market will bear. 

In the mean time, a few eager buyers have 
actually given 73, and as the market is evidently 
rising, and there is still a fair margin of profit for 
the buyers, 74 is conceded by many, and there are 
large transactions at that rate. A strong demand 
has raised the price, and seems to hold it steady. 
Just then, come telegrams in cipher to some of 
the foreign buyers, that wheat has taken a sharp 
turn upward at Mark Lane. Now is a chance for 
extra profit even at 74. Demand increases. Sellers 
are keen to read the thoughts of buyers. The 
sellers get some telegrams, too ; and the price goes 
up to 75. An increased demand caused by a 
larger number of purchasers, or by the same num- 



VALUE. 63 

ber for some reason made more eager, other things 
being equal, increases the price of any article or 
service ; but it must be noted also, that the en- 
hanced price in turn tends to lessen the demand 
by lessening the number of those who will pur- 
chase at the higher rate ; so that, each rise of 
price from enhanced demand tends to check itself 
by cutting off demand. More men will purchase 
wheat in Milwaukee at 73 than at 75. 

On the other hand, it must be noted, that a 
slackened demand tends to lower the price. If 
buyers become less eager than they were, sellers 
are apt to become more pliant than they were. 
When the sales at 75 become few and far between, 
it is for the interest of the sellers to tempt the 
market by offering wheat at 74, perhaps at 73, 
possibly at 72. A lower price, which is itself a 
consequence of slack demand, tends immediately 
to quicken demand by enlarging the circle of 
buyers, and this quicker demand tends to carry up 
the price again. Looking at demand only, within 
those outermost limits formed by mutual desires 
and efforts beyond which price will not go, there 
is a natural check that keeps price from rising to 
an extreme in the fact that high price from sharp 
demand cuts off demand and tends consequently 
to lower price again, and there is a natural check 
of the same kind that keeps price from falling to 
an extreme in the fact that low price from small 
demand is apt to call back demand and conse- 
quently to stiffen price again. 



64 POLITICAL ECONOMY. 

But this is only a part of the full beauty of the 
natural law that regulates values. We have ob- 
served the checks acting in either direction 
through changes in the demand; there are also 
checks acting in either direction through changes 
in the supply. There are three classes of services 
in respect to the law of their supply : first, those 
whose supply can be indefinitely increased at short 
notice; second, those whose supply can only be 
increased after a considerable lapse of time ; and 
third, those whose supply cannot be increased 
at all, like the paintings of the old masters, and 
unique products generally. The line between 
the first and second of these classes is not a very- 
sharp one, but still definite enough to lead to im- 
portant practical consequences. Salt, for exam- 
ple, is a product whose supply in any market can 
be indefinitely increased at short notice. 

Cotton, on the other hand, when once the crop 
of the year has been gathered, cannot be enlarged 
in quantity for a twelvemonth, though this quan- 
tity may be differently distributed under varying 
demand. The same remark applies to wheat, and 
other agricultural products, though cotton is a 
better example, because it is successfully raised at 
only few points, mostly in the United States, 
where 9,518,000 acres were planted to cotton in 
1876. Now, in respect to the first two of these 
classes, and particularly the first one, whenever 
a brisk demand is carrying up the price in any 
market, even before the rising price is checked 



VALUE. 65 

in the manner already indicated, it is apt to be 
checked by an increase of the supply. A market 
in which prices are rising is a good market to sell in. 
The farmers and speculators within hailing distance 
of Milwaukee find out that wheat is creeping up 
towards 75, and the stock in that city is quickly 
augmented through their action. Increased supply 
tends to lower price, because there are now more 
sellers, at least more stock to be sold, more motive 
to trade at some price. Thus, in these classes of 
things, there are two ever-present checks to a ris- 
ing price, namely a falling-off of purchasers, and 
an increased supply. Of course, in this discussion, 
we take no account of changes in the currency. 
We assume a fixed standard of value. 

So also, there are two ever-present checks to an 
extreme fall of price in respect to every thing of 
which a market-rate can be predicated. There are 
various unique things, articles of virtu, things 
whose price depends on fashion or caprice, in re- 
spect to which no useful principle can be laid 
down beyond the most general ones already given. 
They belong in the auction-room rather than in 
the market. Their price is high or low according 
to taste and circumstances. A portrait by Gains- 
borough has just been sold in England for about 
fifty times the sum of a previous sale. Such 
things, though their changes in value are interest- 
ing and illustrate our fundamental propositions, 
are of comparatively little account in Political 
Economy, which interests itself mainly in things 



66 POLITICAL ECONOMY. 

that have a market-rate and in principles applica- 
ble to that. When a market is falling, there is, 
as before, a double check that tends to prevent its 
falling further. First, the enticement of new 
purchasers through a low price, which tends 
thereby to become higher ; and second, the action, 
through supply, of holders and speculators, who, 
respectively, withdraw their stock for a better 
market, and buy up now while the article is cheap 
to store away till it shall be dearer. This acts on 
supply to lessen it, which acts on price to raise it. 
At this very time of writing, the woollen manu- 
facturers of this country are buying California 
wool far in excess of their immediate wants, 
because wool is exceptionally cheap there at pres- 
ent, — because it can be bought for Hi cents per 
pound and brought round by the Horn for one 
half cent per pound, with no heavy duties to be 
paid on it, such as must be paid on foreign wool. 
This prudent action of my Berkshire neighbors 
affects the California wool market to prevent the 
price there from falling so low as it would other- 
wise fall. At one and the same time it lessens the 
supply and increases the demand there. 

This law of Demand and Supply thus doubly 
and harmoniously working, thus tending to keep 
steady and calculable the prices of the great sta- 
ples of human life and activity, while more obvi- 
ous in its application within the field of material 
commodities, nevertheless extends its operation 
over the field of personal services, and the field of 



VALUE. 67 

commercial claims. It is all-comprehensive. The 
tendency of all economical forces is towards the 
equalization of demand and supply, that is to say, 
towards the disposal of each man's own product 
where it is most wanted, and the returning to him 
in lieu of it the product he most wants. The 
result may be called the Equation of Competi- 
tion. The mainspring of action in the economi- 
cal world is self-interest. The practical regulator 
of values is competition. These words sound 
harsh, but the impulses underneath them work 
equally for the good of each and for the good of 
all. They work in a sphere prescribed for them. 
They work under limitations and checks that are 
marvellous to the mind that comprehends them. 
That they do not work perfectly is admitted. 
Sales are not always made at market-rates. There 
are sometimes, so to speak, more market-rates than 
one in the same market-town. Competition some- 
times becomes unscrupulous and immoral, and 
combinations are made to prevent the play of 
wholesome competition. Sometimes even govern- 
ments are persuaded to frame individual "mis- 
chief into a law," and to throw obstacles in the 
way of the free working of natural forces. But, 
after all, these forces vindicate themselves in the 
long-run ; they punish the transgressors, even if 
they do not restore the individual sufferers ; they 
emphasize the maxim by results, that. Honesty is 
the best policy ; they exhibit a wisdom and scope 
and persistency in marked contrast to human 



68 POLITICAL ECONOMY. 

industrial legislation ; and they demand to be let 
alone to work out in freedom — under moral re- 
strictions only — the economical progress of man- 
kind. 

Before closing the chapter, it may be well to 
remark, that, under this great law of value, which 
will be further illumined in subsequent chapters, 
prices will be steadiest in that class of things 
whose supply can be soonest reached and is largest 
in amount ; next steadiest in the second class of 
things, like farm products, whose supply is depend- 
ent on the seasons, and in which fluctuations in 
price and speculation are oftener observed than 
in the other class, although since the abolition of 
the Corn-Laws in England and the consequent 
opportunity for free importation from all coun- 
tries, grain has approximated there in steadiness 
to the staples of the other class ; and least steady 
in the third class of things whether material or 
other, whose price is more dependent upon de- 
mand, and less able to be regulated through 
supply. 



PEODUCTION. 69 



CHAPTER II. 



PRODUCTION. 



I HAVE sought, in the previous chapter, to give 
a clear idea of what Value is, and of the important 
part it plays in the on-going of the world. Next 
to Virtue, Value is the most important thing for 
human happiness. It occupies the thoughts of 
men more than any thing else. It is itself the 
product of two minds estimating at one time two 
things in relation to each other, and, concluding 
them to be for certain purposes the equivalents of 
each other, accepting the one in the place of the 
other. Value has no existence outside the minds 
of men. The conditions for it indeed exist in the 
constitution of the physical earth, and in the 
structure of society, as well as in the nature of 
the individual man, but the determination of it, 
the calling of it into being, the pronouncing upon 
its reality and amount, is always the work of two 
minds. Value, accordingly, is always a result. It 
is the consummation of what has been prepared 
for. Things physical, things intellectual, things 
social, all play a part as preparatory to the realiza- 



70 POLITICAL ECONOMY. 

tion of value. We must now attend to these pro- 
cesses, that lead up to this result. They may all 
be classed under the general name Peoduction. 

The term Production is derived from the Latin 
word jprodueere, which means, to lead forth, to 
expose for sale. Terence uses the expression, 
'"'■ producer e servos" to offer slaves for sale. We 
must rid ourselves at the outset of the notion, 
that is apt to linger about this word, namely, that 
it is only properly applied to forms of matter, and 
that it only means to make something, or to grow 
something, or at least to transform something. 
Terence did not mean to say that the person of 
whom he was speaking brought the slaves into 
being, but only that he brought them out to sell. 
In common language, the growth of the farm is 
called Produce, but only when it is offered for 
sale, in which sense we speak of the produce- 
market. The fundamental meaning of the root- 
word both in Latin and English is effort with 
reference to a sale ; and this is the exact scientific 
sense in which I propose to use the word and its 
derivatives. I hope I am making at this point a 
slight contribution to a more exact nomenclature 
in Political Economy. 

Production is always Effort, but it is not every 
kind of effort that is production. My boy is now 
playing the piano in the parlor; it is effort for 
him, — irksome effort, — but as he has no inten- 
tion ever to sell his acquired skill upon that in- 
strument, it cannot be called productive effort. 



PRODUCTION. 71 

It is effort put forth for altogether other than com- 
mercial reasons. The effort of his music-teacher, 
however, who comes here to give him his lessons, 
is productive effort, inasmuch as it is put forth 
solely with reference to a sale. Efforts of all 
kinds that find their purpose and end in an ex- 
change are Production: efforts put forth for 
amusement, for self-improvement, for benevolence, 
for personal or family gratification, are not Pro- 
duction. Political Economy has to do with pro- 
cesses simply as these are related to sales ; and it 
makes no difference what kind of processes they 
are, if they have that design and issue. Some 
efforts, like those of the farmer, the miner, the 
wagon-maker, have to do with material things in 
the way of preparing them for sale, and Political 
Economy is interested in these efforts, inquires 
after their kinds and cost, as bearing on the sale 
that is to come ; other efforts, like those of the 
banker, have to do with salable credits, and 
Political Economy inquires into all the processes 
of banking ; while still other efforts, like those of 
the public singer, prepare for and are connected 
with the rendering of merely personal services, and 
Political Economy accordingly inquires into the 
conditions and law of wages. Production^ then, is 
effort in getting something ready to sell, and selling 
it. A Producer is a person who does just this, 
without any reference to the kind of things he 
sells, whether they be commodities, services, or 
claims. A product is any thing ready to he sold. 



72 POLITICAL ECONOMY. 

The adjective productive^ althougli it is often used 
as synonymous witli fertile, finds its only proper 
economical sense in harmony with these defini- 
tions. 

In current language, one hears consumers con- 
trasted with producers^ and consumption spoken of 
as the opposite of production. These words are 
correlative to each other in much the same way 
as supply and demand. One set of men are not 
the producers, and another set the consumers, but 
each producer is in another aspect a consumer, 
and each consumer is in another aspect a producer. 
As derived from the Latin consumere, which means 
to use, to employ, as well as, to waste, to destroy, 
the English derivatives have a little stronger taint 
of ambiguity about them than the derivatives of 
producers, which, as we have seen, have not wholly 
escaped ambiguity. In their economical sense, 
however, with which alone we have to do, to con- 
sume means to take up, to use ; the consumer is the 
customer, the purchaser ; and consumption is simple 
purchase. Many things purchased are destroyed 
as to form almost immediately, while many other 
things purchased are not thus destroyed, but both 
are equally " consumed " in the technical sense. 

For example, a shoe manufacturer buys at the 
same time a stock of leather and a pegging-ma- 
chine : the leather immediately disappears as 
leather, and re-appears in the form of shoes ; the 
pegging-machine for years and years " keeps peg- 
ging away;" but the manufacturer is equally the 



PRODtrCTION. 73 

" consumer " in relation to them both. Whenever 
any producer exchanges his product for another, 
he becomes a consumer in relation to that product, 
while the other party is equally producer and 
consumer in relation to him. This illustrates the 
complexity and the harmony of interests in the 
economical world. The sooner any man's product 
is consumed the better for him and for everybody 
else. 

We are now in position intelligibly to discuss 
the requisites and processes of Production. These 
requisites are only three : Natural Agents, 
Labor, Capital. 

By Natural Agents is meant every thing, out- 
side of man himself, furnished gratuitously by 
God to men, by means of which their productive 
operations may be sustained and facilitated. The 
chief of these are the Land, out of which comes 
our bread ; the Materials on the earth and within 
it, like stone, timber, the metals, coal, petroleum, 
and salt ; the Sea, which at once divides, unites, 
and enriches the nations ; the various natural 
Forces, such as those of wind, water, steam, 
electricity, and so on ; and what are called the 
domestic animals, the ox, the ass, the horse, and 
others. These are all gifts of God to men. 
Originally, and before any labor is expended in 
connection with them, all of them are wholly des- 
titute of value. Some of them, like the salt and 
the spontaneous growths of the earth, may have 
utility, that is, capacity to gratify human desire, 



74 POLITICAL ECONOMY. 

but value they have not, and never get, except as 
labor is expended on them or in some connection 
with them. Wind blows, and water gravitates, 
and steam puffs, and electricity darts, for nothing. 
The Hollander builds his windmill with onerous 
effort, and can doubtless sell the structure to his 
neighbor, but the wind that fills its wings costs 
neither of them any thing. Most of the factories 
of New England are propelled by the weight of 
falling water, but the water leaps to those wheels 
of industry without pay. The United States ex- 
ported in the first six months of 18T6, 101,389,183 
gallons of petroleum, but the value of it was due, 
not to what had been done in the wonderful 
laboratory of Nature, but wholly to what had 
been done by men in boring the wells, in securing 
the oil, and in transporting the product. Provi- 
dence indicates its will that men should be pro- 
ducers by offering on every hand free materials to 
be wrought upon, and free forces by means of 
which production may be made easier. It is 
proof complete that these materials and forces are 
offered gratuitously, since no man has ever authen- 
ticated his claim to ask any thing for these things 
in God's behalf. 

If men have done any thing in the way of labor 
to better these materials or to harness these forces, 
they may ask pay for that, and get it ; but if they 
go beyond this, and ask something for what they 
or their predecessors have done, and something 
additional for what God has done, their cupidity 



PRODUCTION. 75 

will be thwarted both by the competition of other 
men, who will offer similar products for a fair 
compensation for the human labor expended, and 
especially by the fact, that there are other free 
materials and forces not 3^et laid hold of by any- 
body, which can be put into just as good shape for 
use as these, by no greater expenditure of labor 
than has been put upon these. God is a Giver, 
and not a Seller. The whole world of materials 
and forces has been thrown open to men with such 
liberality, and under such circumstances, that 
they cannot first appropriate the gifts, and then 
peddle them out for pay. There may seem to be 
cases in which this has actually been done, but, I 
believe, that they will mostly or wholly disappear 
under a rigid analysis, and particularly so, when 
it is remembered, that abstinence from use or 
enjoyment, as well as actual labor bestowed, either 
by a man himself or by those of whose labor 
and abstinence he has rightly become proprietor, 
entitles him to demand a return. 

Very contrary to what has often been taught 
even in books on Political Economy, these general 
principles apply perfectly to Land. Land is the 
most important natural agent. Its cultivation 
employs the efforts of more than half of the 
human race. In many countries its possession is 
eagerly desired on account of social considerations 
attaching to it. What, then, does its value depend 
on? I answer, that it depends on precisely the 
same considerations as the valuB of other things 



76 POLITICAL ECONOMY. 

depends on, namely, desires, efforts, and estimates. 
Until human efforts are put forth upon a piece of 
land, or in some immediate connection with it, 
that land is valueless of course, both for other 
good reasons, and because no one can lay any 
claim to it, or show any title to it whatever. God 
gave the earth to men on the condition that they 
" replenish and subdue it." Conquest and confis- 
cation aside, the personal ownership of land has 
always virtually come in under the efforts implied 
in this word subdue. Whenever an individual, or 
a family, has expended labor upon a parcel of land, 
has improved it, has made it easier for another 
family to gain a living from it, then, wishing to 
leave it, he might properly enough offer to sell it 
to a new-comer. But what would he offer to sell ? 
The inherent qualities of the soil? Those natural 
forces which he had not improved ? No ! He 
could only sell what he himself had contributed of 
betterment. He would not think of selling any 
thing else; and even if he did think of it, he 
would not succeed in doing it, for the reason, that 
no one would give him any thing for the original 
qualities of the soil. In the beginnings of socie- 
ties and settlements there is always an abundance 
of land to be had for the mere occupation and 
subjugation of it ; and it is contrary to the im- 
pulses of human nature to suppose that a later 
would give an earlier comer any thing more than 
a fair equivalent for what had been wrought of 
actual improvement, while other lands just as 



PRODUCTION. 77 

feasible as that originally was are all open to him 
" where to choose." It must be remembered that 
estimates alwaj-s precede value ; and that men do 
not, as a rule, give something for what they can 
just as well have for nothing. 

In older settled countries, in which the fee sim- 
ple prevails, after all the good lands have been 
taken up, men are always found willing to part 
with land as with any thing else for about what it 
has cost them of effort or money, and the action 
of these tends to make a market-rate for lands, 
and competition eliminates all the gratuitous ele- 
ments involved from any action upon price, and 
leaves the value of land to be determined as other 
values are by the onerous elements involved. 
This abstract view is confirmed by facts. It has 
long been a maxim in our Western States, that 
farms of the most fertile land are worth about the 
present value of the improvements on them, and 
no more ; and it has been calculated at large by 
Mr. Carey, that the lands in all countries are now 
worth far less than it has actually cost to amelio- 
rate them. I know from personal knowledge, that 
farms in my native state of New Hampshire, 
which, in my boyhood, supported large families, 
have been abandoned by their late owners, and 
are now growing up to forest again. They could 
not sell them at any price, they have simply left 
them to lapse into their primitive state, while they 
and their families have migrated to the West. 
All this does not look as if lands had value in 



78 POLITICAL ECONOMY. 

themselves separate from the endeavors of men. 
Nothing has value in itself separate from the 
endeavors of men. 

On the other hand, it must not be supposed 
that the value of different parcels of land is 
always proportioned to the amount of efforts put 
forth upon them ; the efforts may have been mis- 
directed; the utility sought to be conferred by 
labor may not have found the requisite utility 
underneath ; the desires calculated to be met may 
have taken another turn ; and so, there may be a 
greater diversity in the value of lands than in the 
amount of efforts expended upon them. Still, the 
efforts are always the basis of the value, and not 
the natural fertility of the lands. While it is not 
denied that the varying natural fertility in lands 
may within certain limits vary the prices of those 
lands, it is confidently affirmed, that a high degree 
of natural fertility has been scattered with so 
bountiful a hand, and that lands naturally less fer- 
tile have such compensating advantages of another 
sort, that, under a broad view, the degree of origi- 
nal fertility becomes a common factor cancelled in 
price, according to principles already explained. 

Let me remind my readers also, that lands are 
often desired on other grounds than their fertility, 
and that whatever goes to make them an object of 
special desire becomes an element in their value. 
Land in cities often becomes extremely valuable, 
not at all on account of native fertility, not so 
much on account of what has been done on or 



PRODUCTION. 79 

concerning that particular patch, although the ex- 
penditure and abstinence of previous owners may 
a good deal influence the price, as we shall better 
understand when we come to study Capital, but 
mainly on account of what has been done and is 
being done all around it : — a busy city has grown 
up around it, and that piece has become desirable 
for business or other uses in consequence of the 
action of others than the owner. It is thus that 
social, municipal, and political movements win 
their power to influence values by making some 
things more desirable than they were, and other 
things less desirable. Lands supposed to contain 
rich mines, or holding an extraordinary water- 
power, or containing a building site of unusual 
beauty, frequently excite a strong desire in cer- 
tain persons to possess them, and bear in conse- 
quence a high price. These lands are assimilated 
in the law of their value to other unique products. 
If there be no competition in the sale of such 
things, and consequently no market-rate, the only 
gauge of their value is the degree of service which 
the owner can render the purchaser by means of 
them. That portion of their utility that is the 
free gift of Nature is commingled with the utility 
that has been conferred b}^ man, and there is not 
the usual opportunity through competition to 
throw out from its action on value the gratuitous 
utility. These are comparatively unimportant 
exceptions, and themselves come with precision 
under our fundamental principles. 



80 POLITICAL ECONOMY. 

We can now see exactly how Natural Agents 
stand related to Production. They are a requi- 
site of production. They assist and sustain the 
processes. They are not of equal rank in produc- 
tion with man and his efforts. Men make use of 
them to further and enlarge their designs of sale. 
Lands are subdued and cultivated and improved 
by men for the sake of more profitable harvests ; 
but the lands demand back nothing for them- 
selves ; they are not an independent and co-ordi- 
nate contributor to production ; if they are hired, 
as they often are, the rent paid for the use of 
them is not in virtue of the original qualities of 
the soil of which some chance grabber became 
proprietor, but in virtue of previous human toil 
and care, which must also be continued in the 
future, or else the lands will become valueless 
again as they were in the beginning. Moreover, 
liberally as lands respond to improvements in 
agriculture, there is a limit to their power to 
respond. If I double the labor upon my turnip- 
field, I may possibly for a single year double my 
crop of turnips ; but if I redouble the expense for 
the next year, T shall not redouble my crop ; for, 
if that were the law of returns in agriculture, if 
increased effort upon a given area increased the 
produce in the same ratio, an acre were as good 
for productive purposes as 100 acres, and 100 
acres were as good as a continent. 

If it were not for this universal law of agricul- 
ture, namely, that relatively diminishing returns 



PRODUCTION. 81 

accompany increasing expenditures upon land, the 
surface of the earth would not now be occupied 
by husbandmen as it is occupied. The agricultu- 
ral motive that leads men to pass from the first to 
the second acre, from the old farm to the new, 
from the mother-country to colonies, and from one 
country to another, is the fact, that, under any 
given conditions of agricultural skill, the limit of 
productiveness is soon reached, the law of dimin- 
ishing returns comes into play, and it becomes 
profitable to migrate to " fresh fields and pastures 
new." Of course, all improvements in scientific 
and practical agriculture, the discovery of new 
methods like the rotation of crops, the invention 
of better implements, the application of new fer- 
tilizers, the light thrown upon farming by Chemis- 
try, retard the law of diminishing returns, and tend 
to keep husbandmen as such in their old haunts. 
Providence has made use of this law in order to 
people the whole earth in accordance with the 
original direction that the earth be "replenished;" 
and in making man the lord of the earth, and 
giving him "dominion over the fish of the sea, 
and over the fowl of the air, and over every living 
thing that moveth upon the earth," ^ there is un- 
mistakably brought out the essential, though sub- 
ordinate, relation of all natural agents to man. 

Notwithstanding the law of diminishinof returns 
in agriculture, which, as has been shown, has 
already had important effects in dispersing people 

1 Gen. ii. 28. 



82 POLITICAL ECONOMY. 

over the earth, the earth has never yet in any 
part of it yielded what it is capable of yielding for 
the sustenance of her children. Her produce can- 
not indeed be indefinitely increased in a geometri- 
cal ratio, but it may be immeasurably increased in 
an arithmetical ratio ; and while it is abstractly 
possible that population may increase in a geomet- 
rical ratio, that is, double itself in each genera- 
tion ; and while Mr. Malthus has given his name 
to a theory of fear lest population may one day 
trench on the possible means of sustenance ; yet 
it is undoubtedly true, as a matter of fact, that 
the population of the earth, increased as it is, 
was never as a whole so well fed and clothed and 
housed as it is to-day ; and it is undoubtedly true, 
as a matter of reasonable conclusion, that the earth 
is capable, under a proper development of all her 
food-sources of flesh, fish, fowl, cereals, and vege- 
tables, of sustaining in comfort a population many 
thousand-fold greater than the present ; while it 
is also undoubtedly true, whatever may be said 
of abstract possibilities, that legitimate checks to 
population, which come silently and effectually 
into play as men come more and more under the 
sway of reason and affection, may be rationally 
expected forever to prevent the Malthusian im- 
pinging of population upon food. 

In respect to all the other natural agents, just 
as in respect to the earth itself, they are ready to 
slave in the service of man. What the earth does 
in producing wheat, or rice, or any other of her 



PRODUCTION. 83 

growths, enters as no element into their value ; 
since the sun sliines free, and the rain falls free, 
and the chemical actions in growth and maturing 
work free ; and the more bountifully under more 
skiKul culture the earth can be made to yield her 
increase, the lower, so far forth, will be the value 
of any specific part of that produce. Just so, the 
other natural agents are ready to work without 
money and without price. Ever since the Atlantic 
cable was laid, and a path was made for the light- 
ning, electricity has done its part in ocean teleg- 
raphy for nothing. Did my readers ever think 
for what purpose men require the help of most 
of these natural agents ? It is simply to produce 
motion for them. Indeed, in physical labor, all 
that man himself can do is to make a series of 
motions. His muscles are only adapted to do that. 
When he has moved things into right positions, 
the powers of nature will do the rest. At any 
rate, that is all he can do. 

I have heard all the morning in the fields around 
my house the click of the mowing-machine. It is 
moved by two horses, a man riding on the ma- 
chine, and guiding both the horses and the 
machine. All that the horses do is to draw the 
machine through the grass, and all that the man 
does is to guide the horses with one hand by 
pulling the reins, and guide the machine with the 
other by lifting or depressing a bar. The mowing 
is nothing but a series of motions animal and 
himian. Formerly, men did all the mowing by 



84 POLITICAL ECONOMY. 

scythes drawn by hand. That was simple motion. 
Now, they substitute horse-power, that is, they 
use horses to make the motion that cuts the grass. 
If the swath is spread by fork or tedder, it is 
motion that spreads it, human or animal, as the 
case may be. The tedder is superseding the fork 
for that use. The hay is lifted to the cart, and 
thence to the mow, by another series of motions, 
in which some progress has already been made in 
substituting power for muscle. Haying is motions. 
So is ploughing, and harrowing, and sowing, and 
reaping. So are • all the operations of the farm 
whatsoever. So is washing the sheep, shearing 
the fleece, dyeing the wool, carding, spinning, 
weaving, specldng, gigging, finishing, packing, — 
all the processes of manufacturing from beginning 
to end. Think of it ! Physical work is nothing 
in the world but the contraction and relaxation 
of muscle guided by an intelligent mind. But 
this, repeated and continued, becomes wearisome ; 
and, probably, in the very beginnings of society, 
certainly, very early, men looked around for helps 
in this matter of making motions. 

They first pressed the domestic animals into 
this service ; and it is worth noticing, that the ox, 
the ass, the horse, are only desirable and valuable 
as creators of motion for man. They greatly 
relieve his muscles, and greatly enlarge the sphere 
of his physical activities. Savages dig the earth 
for planting with a hoe ; civilized men plough and 
harrow it by means of natural agents. After- 



PEODUCTION. 85 

wards, men thought of some inanimate auxiliaries 
in making motion, and the water-wheel and wind- 
mill were devised. Gravitation is a constant force 
in nature, asks for no rest, feels no weariness, and, 
throwing water upon a wheel, can move things 
equal to a thousand men. In flat countries, the 
force of wind moving upon a vertical or horizontal 
wheel fitted with a kind of wing or sail to catch 
the breeze is only a less efficient agent than the 
force of falling water. 

Much later, steam was discovered as a motive- 
power ; and later still, electricity. The piston-rod 
moves back and forth by a motion quite analogous 
to that of the human arm ; and all that steam- 
engines are wanted for on land or sea, on moun- 
tain-top or in deep mines, is just to reduplicate 
the power of which a human arm is capable. Na- 
ture is so cunningly constructed, that materials 
only need to be moved aright, and objects of utility 
and value are the result. I lately observed at the 
International Exhibition at Philadelphia a little 
machine, belonging to the United States, and 
tended by a single girl, which, when fed by a pile 
of white paper, cuts out in outline a mass of 
letter envelopes, then picks them up "one by one 
much faster than I can tell it, folds them properly, 
glutenizes the edge for sealing, stamps them with 
the postal legend of the United States, and drops 
them into a receptacle ready for packing. The 
great engine communicates its motion by a band 
to this little machine, which itself, by another 



86 POLITICAL ECONOMY. 

series of motions, completes beautifully stamped 
envelopes good through the national Post-Office. 
Steam, like the domestic animals, makes motions 
useful in production ; but, no more than they, can 
it be left to work by itself. All natural agents 
need the supervision of. human intelligence. 

Electricity, too, whose action round the world 
is a never-ceasing marvel to every thoughtful 
human being, works all its wonders by a series of 
little motions, or interruptions to motion. The 
electric current may be compared to the contrac- 
tion of muscle, the breaking of the current to its 
relaxation. As the motions of the hand through 
the pen jot down the thoughts of the writer, and 
as the motions of the press make a record of 
thoughts upon the printed page, so the minute 
twitches of an invisible current rushing upon a 
wire communicate by sound or mark the thoughts 
of men across the continents. Great is motion! 
Great is the adaptation of the materials of the 
world to be transformed into useful products by 
the forces of the world ! Great are the forces 
of the world to run to and fro over the earth to 
do the bidding of man ! 

All this brings us to a most cheering law of Pro- 
duction, which is, that production is constantly going 
forward under less and less otierous conditions. The 
reason for this is now very apparent, namely, that 
men are able to throw off more and more of the 
burden of production, that is, of the effort needed 
to get things ready to sell, upon the ever-willing 



PRODUCTION. 87 

shoulders of nature. Nature furnishes all raw 
materials gratuitously ;' and what is more, furnishes 
on every hand animate or inanimate poioers, which 
men may avail themselves of, which men are 
availing themselves of more and more, in fashion- 
ing these materials for the world's great market. 
Almost any physical product, that my readers can 
name, represents vastly less of irksome human 
effort than a similar product represented one cen- 
tury ago, not to speak of the greater contrast with 
many centuries ago. Take for instance, a barrel of 
flour. The improvements in agricultural imple- 
ments and methods involved in growing and har- 
vesting the wheat, out of which the flour comes, 
make the onerous elements small compared with 
what they used to be. Wheat used to be sown, 
and reaped, and threshed by hand ; now all these 
processes are done by machines propelled mainly 
by horses. Ridley's reaper, which is used in South 
Australia, and other places where no rain falls in 
harvest-time, combines the threshing with the 
reaping. By the action of this machine, the grain 
is literally combed off the stalks, and falls clean 
into a receptacle all ready for the sack, while the 
stalks are left standing.^ It only costs $2 gold an 
acre thus to reap, thresh, winnow, and bag wheat 
ready for market. Hand reaping, threshing, and 
so on, as against this machine work, costs there 
$5.35 gold per acre. 

In this country, owing to the climate, we have 

1 Musgrave's Studies, &c., p. 108. 



88 POLITICAL ECONOMY. 

not got so far as Ridley's reaper, although the 
immense threshing-machines with winnoAver at- 
tached, which I have seen in Iowa, propelled by- 
ten horses, and used by neighboring farmers in 
combination and rotation, greatly reduce the cost 
from the old hand-flail times. Then, too, the 
grinding into flour by improved machinery costs 
less than formerly ; and the barrel staves and 
heads are cut by machines, which used to be 
shaped by the cooper's hand ; and transportation 
by steam over steel rails is but little in cost com- 
pared with the old " teaming " times. The average 
cost of good wheat to the farmers of our Western 
States cannot be far from 50 cents, gold, per 
bushel ; and the difference between this and the 
cost to the farmers of New England one hundred 
years ago, which could not have been less than 
100 cents, is wholly due to the free forces that are 
now more fully in play. 

What is thus true of an agricultural product, 
is still more true of manufactured products of all 
kinds. Natural agents can never have so free a 
play in cheapening the products of the farm as of 
the factory, for three reasons ; first, the division 
of labor cannot be carried very far in agricul- 
ture ; second, from the nature of the case, machin- 
ery can be less employed on the farm than in the 
mill, since the latter deals with dead matter and 
the former largely with living tissues ; third, noth- 
ing can materially shorten the time during which 
the fruits of the earth must mature, while all the 



PRODUCTION. 89 

processes of manufacture may be hurried forward 
without intermission. The wool on the sheep's 
back to-day may be in the dye-house to-morrow, 
carded the next day, spun the next, woven the 
next, finished the next, and be under the tailor's 
shears before the week is out. It is an important 
corollary from this principle, that a given amount 
of farm products tends, under free exchange, to buy 
more and more of manufactured products of all 
kinds; inasmuch as this great law of gratuitous 
auxiliaries, which tends to cheapen all things 
relatively to a fixed standard, applies less com- 
pletely to the farmer than to the manufacturer. 
I have called this elsewhere ^ " The Farmer's 
Advantage " because the value of farm products 
is more calculable in the present and future, is 
less liable to fluctuations, and especially to sudden 
decline, than the value of manufactured products 
in general. The farmer naturally holds a more 
secure and conservative position in the realm of 
value than the manufacturer does ; while both 
should strive to avail themselves to the fullest 
extent of all the helps that nature offers them in 
their respective fields. 

There is no branch of industry, whose opera- 
tions are not becoming easier and more effective 
in consequence of the increasing use of natural 
agents. The various forms of physical produc- 
tion, that is to say, the bringing forward for sale 
of commodities, are more facilitated in this way 

1 Agricultural Address at North Adams, 1870. 



90 POLITICAL ECONOMY. 

than the other kinds of prodiiction, because motion 
can be more directly applied to them in their 
preparation and transportation than to the others ; 
and natural agents pre-eminently furnish their aid 
in the form of motion. We have already illus- 
trated the cases of the production of flour and 
cloth. There are no commodities, that I am 
aware of, the processes of whose production in 
civilized countries are not being made easier by 
new applications of gratuitous natural forces ; and 
the selling of personal services, and of claims of 
all sorts, though less directly affected by these 
applications, is nevertheless indirectly greatly pro- 
moted by them. For example, laborers can go 
much further to their work from their homes, and 
thus be more sure of finding work, by means of 
the railroads ; the lawyer in his office working up 
a case can bring needed evidence from a distance 
by means of the telegraph ; and bankers, brokers, 
credit-dealers of every name, proceed more safely 
in their business under the modern opportunities 
of swift information and rapid action even as 
between distant countries. Other, and perhaps 
better, illustrations will occur to every reader. 

Now, the effect of all this is to make a given 
amount of effort in any direction more prolific in 
utilities. More is produced on all hands. Ex- 
changes are multiplied, since there is more to be 
exchanged. If men do not work fewer hours 
under all these improvements, then they can render 
a great many more of their peculiar services ; and 



PRODUCTION. 91 

the probability is, that, working fewer hours, and 
having more leisure for their families and for self- 
cultivation, the improvements will more than keep 
pace with their relaxation, and so a double blessing 
comes through God's free bounty in natural agents. 
The cheering element about this is, that, under 
natural laws uninterfered with by the wretched 
legislation of men, more wants of all men tend 
constantly to be satisfied without any more onerous 
exertion on their part. The masses are no longer 
content with food and clothes and shelter, and 
they should not be encouraged to be. God has 
ordered it so, that, without additional work^ every- 
body may have additional comforts. The wants of 
all men are indefinite in number and degree, and, 
therefore, production may go forward indefinitely 
without ever a fear of finding a general glut of 
its products. There is something better under 
natural law for the toiling millions than " irre- 
trievable helotism." That natural law is, that 
production may go forward under ever lightening 
hurdeyis to men with an ever increasing volume of 
products to he distributed by exchange among men. 
Certainly, in order that men may enjoy the full 
benefits of this law, they themselves must be in- 
dustrious, frugal, temperate, virtuous; and their 
governments must not overstep their legitimate 
functions in legislation ; these, surely, should not 
be considered grievances by anybody. The law 
is embedded by divine wisdom in the constitution 
of things. Free forces are so offered to men, 



92 POLITICAL ECONOMY. 

that, if they avail themselves fully of these, they 
cannot fail, the necessary moral conditions being 
supplied, to rise continually in the scale of com- 
forts, in the power to command through exchange 
the satisfaction of their wants. 

The personal motives, that lead men to avail 
themselves in a higher and higher degree through 
implements of the help of natural agents, are to 
be found, partly in a natural love of invention, 
and partly in considerations that grow out of 
value. Some men are born with a knack for con- 
trivance ; others seem to develop this later in life ; 
and many are never so happy as when trying to 
invent something, or to improve upon some inven- 
tion already made. In almost all cases, these 
efforts look towards the construction of some ap- 
paratus to use for productive puposes the natural 
force of wind, water, steam, electricity, gravita- 
tion, friction, or some other. Doubtless, in most 
cases, these persons think, if they are successful, 
there will be pecuniary profit coupled with their 
invention, although to secure that does not seem 
to be their main impulse. They work in the love 
of it. Many others work at inventions out of a 
desire to make them immediately profitable. This 
is particularly true of men engaged in the manu- 
facturing of fabrics or of implements, who are 
subjected to intense competition, and who, if they 
can bring in a little more of free force into their 
processes, will have at least a temporary advantage 
over their rivals. This makes it necessary to 



PRODUCTION. 93 

explain how improvements act upon the value of 
those things produced by their help. 

We have already seen how competition tends to 
throw down the value of every thing towards the 
level of the onerous elements concerned in its 
production, so that men cannot, as a rule and for 
any length of time, sell God's gifts ; it is a con- 
sequence of this, that the value of every thing 
whose production is facilitated by improved pro- 
cesses and free forces tends ultimately to decline 
relative to the value of every thing whose produc- 
tion is not equally facilitated. In the light of 
this, it would seem at first sight, as if there would 
be no motive on the ground of value to strive for 
better processes. Nevertheless, there is a tem- 
porary state of things after an improvement has 
been introduced, say, into a cotton-mill, during 
which the old price may be obtained for a product, 
which now costs less of onerous effort. This is 
the motive to bring in the improvement. So soon 
as the improvement becomes general in cotton- 
mills, down will go the value of the product to a 
new level, and almost at once after the first intro- 
duction, there will be a motive to lower the price 
a little, so as to get a better market and undersell 
competitors, but so long as the process is confined 
to that mill by patent or otherwise, there will be 
some extra gains there, sufficient perhaps to reward 
the inventor for his time and toil, and to become 
an inducement to him and to others to continue 
to exercise their skill as inventors. The tendency 



94 POLITICAL ECONOMY. 

of secret knowledge is to become known, of spe- 
cial processes to become general, of patent rights 
to expire and be infringed on ; and so, production, 
which is especially open by double motive to 
invention, becomes a kind of perpetual contest, 
the issue of which is always favorable to common 
rights and lower values. 

If two articles, which formerly exchanged 
against each other, are now both produced 
through improved methods, they will exchange 
against each other still at the old rate, provided 
both improvements release an equal amount of 
onerous effort ; and if they do not, then that one 
will buy less of the other, whose production has 
been most facilitated ; while both will buy less of 
money, or other product, that has remained fixed 
in the conditions of its production. As a matter 
of fact, there is no such product, though, for rea- 
sons to be given hereafter, gold comes nearer to 
that description than any thing else. This con- 
cludes our direct discussion of Natural Agents. 

The second requisite of production is Labor. 
Labor is any human exertion that demands something 
for itself in exchange. Every person puts forth 
more or less of muscular and mental effort with- 
out any expectation of a return for it. This is 
not labor. Nothing is labor that does not look to 
a sale ; and we are excused by the definition from 
the old discussion about " productive " and " un- 
productive " labor. All labor is productive in fact 
or in intention. If I watch all night with a sick 



PRODUCTION. 95 

neighbor, I put forth an effort irksome in itself, 
but done in kindness with no thought of a return. 
That is not labor. I write for pay an article in 
the newspaper with half the expenditure of vital 
force of the night's watching : that is labor. The 
mistress employs her powers of body and mind for 
two hours in dressing herself for a party : that is 
not labor. Her servant-girl gives a languid inter- 
est, and lends an occasional hand, to the process : 
that is labor. It is not the Idnd of exertion, it is 
not the degree of the exertion, it is not the length 
of time during which the exertion is put forth, 
that constitutes effort to be labor ; but it is the 
end for which the effort is put forth. Labor, like 
every thing else in Political Economy, is tested by 
the criterion of a sale. The only seal used in this 
science is the seal of the market. 

A large part of the labor of the world is what 
may be called physical labor, that is, the exertion 
is primarily muscular, and is, in fact, the moving 
of materials or implements with reference to a cer- 
tain result. In all cases, some action of mind is 
required to do this successfully ; probably the in- 
ferior animals could not be trained to do it at all, 
though dogs do sometimes churn under supervision ; 
yet the main thing furnished by the laborer is mus- 
cular motion more or less regular and constantly 
repeated ; and it is in consequence of this feature 
of it, that the substitution of machinery in its 
place has already gone so very far, and is destined 
to go much farther. Machinery can only be made 



96 POLITICAL ECONOMY. 

to perform regular motions ; and therefore it can 
only be made a substitute for labor in so far as 
that labor furnished a series of more or less regu- 
lar motions. Horse-power now saws the wood at 
our railroad station, where Pat and Mike and Jim 
used to saw it, because all that is required in 
either case is motion to bring the saw in contact 
with the wood. 

So it is in spinning and weaving and printing 
and drilling. Machinery can be made to do won- 
ders, but it cannot be made to think. All ma- 
chinery, the simplest and the most complex, re- 
quires human intelligence to guide it. So far as 
the work was a mere recurrence of motions, ma- 
chinery may come in to relieve muscle ; so far as 
it was adaptation to circumstances, adjustment in 
exigencies, the human mind must be there as be- 
fore. The introduction of machinery has lessened 
the demand for the simplest form of labor, while 
it has doubtless increased the demand for labor in 
general. The cheapening of individual products 
through freer processes has enlarged the demand 
for them, has multiplied the number of them, has 
even increased the aggregate value of them, and 
while fewer laborers are needed at one point of 
the process, more are needed at other and more 
complex points of the process. I have never seen 
the point made before, but I will venture the 
assertion, that the whole tendency of things is to 
drive laborers into places requiring more and more 
of intelligence and skill. The lowest places, 



PEODUCTION. 97 

where laborers have swarmed for ages, are being 
occupied more and more by hibor-saving appli- 
ances, and laborers are now wanted to tend these 
machines, to market the goods, to watch and wait 
and judge, in short, to render services requiring 
intelligence and will, rather than those requiring a 
succession of motions mainly. 

For labor is of various grades, and is paid for 
accordingly at very various rates. Mr. Hugh J. 
Jewett received as president of the Erie Railway 
140,000 a year as stated salary. Few men can 
bear the burdens that he bore in that capacity. 
The French painter, Meissonier, received 150,000 
francs in 1867 for a single picture, " A Charge of 
Cavalry," now in a private gallery in Cincinnati ; 
and, more recently, 300,000 francs for the " Battle 
of Friedland." These are works of genius, but 
they are also fruits of labor ; and in wondering at 
their price, we must not lose sight of the years of 
toil in preparing for and painting them, of the 
money paid for costumes and accessories, and of 
the hire of models, and so on. Before Meissonier 
painted his picture of Napoleon III. at Solferino, 
he made a journey to Italy expressly in the way 
of preparation, and another to Vienna, to make 
researches and get hints for his picture of the 
meeting of the emperors Napoleon III. and Fran- 
cis Joseph at Villafranca. The truth is, that the 
studies and labors of one's whole life are a needed 
preparation for any really great work, and the ex- 
traordinary compensation that sometimes awaits 



98 POLITICAL ECONOMY. 

the completion of such a work, whether of an in- 
ventor like Prof. Morse, of an engineer like De 
Lesseps, of an artist like Horace Vernet, or of an 
author like Charles Dickens, is really the reward 
of a long series of otherwise unremunerated 
efforts. From the lowest forms of manual labor, 
as the stone-breaker's and the wood-sawyer's, to 
the highest efforts of professional genius, as the 
piano-playing of Liszt and the legal plea of 
O'Conor, is indeed a long way, and the interval is 
filled up full with every variety of personal ser- 
vices rendered for pay, but the extremes and the 
means are all alike labor^ and it is difficult to make 
any classification in this case, because the at- 
tempted classes are sure to grade into each other. 

A rude classification of labor may be made into 
common^ skilled, and professional labor. Common 
labor is that which can be acceptably performed 
by an ordinarily competent person after a little 
instruction and practice without any thing corre- 
sponding to an apprenticeship as a preliminary. 
Farm laborers, railroad laborers, 'longshoremen, 
teamsters, porters, miners, and many more, belong 
to this class. Wages, which are the remuneration 
of labor, are the lowest and steadiest in this class, 
because, owing to the ease with- which the class 
can be recruited at any time from growing boys 
and immigrating foreigners, the supply is kept 
constantly large relatively to the demand. It is 
time to remind ourselves again, that values spring 
out of Desires and Efforts. Wages are a form 



PRODUCTION. 99 

of values, their peculiarity being that they are 
received for a personal service rendered, and not 
for a commodity or claim rendered. The personal 
service may be incorporated into a commodity, or 
it may not ; that makes no difference so far as the 
labor and its wages are concerned ; Meissonier 
received his commission from the emperor to paint 
the " Solferino," and his labor was embodied in a 
commodity that belonged to the emperor so soon 
as it was done, and what he was paid for was his 
personal service as a painter ; on the other hand, 
Parepa Rosa was paid a large sum for an evening's 
singing, and her service had no connection with 
any commodity. All labor is offered over against 
some desires of other men, and wages are the 
response to that appeal. It is easy to point out 
the maximum of wages : it is the point at which 
the labor-takers will sooner forego the labor than 
give any more for it. It is easy also to point out 
the minimum of wages : it is the point at which 
the labor-givers will sooner forego wages alto- 
gether than take any less wages. 

Between these extremes marked out by the 
intensity of the desires on both sides, the rate of 
wages will fluctuate back and forth according to 
circumstances. There are a great many persons 
in all countries who desire such services as com- 
mon laborers can render, and are able to pay for 
them at a moderate rate only, since their desires 
are not intense nor their means very ample. 
There are everywhere common desires for comforts 



100 POLITICAL ECONOMY. 

and ordinary gain, just as there are often intense 
desires for distinction and for extraordinary gains. 
Common laborers, being numerous for the reason 
already given, compete with each other to secure 
the wages thus offered by those who desire their 
services. In many cases, these services could be 
and would be dispensed with, if a high rate of 
wages was demanded. Under these circumstances, 
a general market-rate of wages for common labor 
is determined — an equalization of demand and 
supply is had — and the rate is always moderate, 
because the service of the labor-givers has few 
elements of scarcity or difficulty about it, and be- 
cause the return service of the labor-takers is not 
proffered under the impulse of unusually strong 
desires. Of course, a market-rate thus established 
is liable to change from time to time, being higher 
in flush times and lower in dull times, but on the 
whole steadier than the wages-rates in the higher 
departments for reasons soon to be given. I know 
of no guiding principle, other than these general 
ones, which determines in any country the rate 
of wages of common labor. The number of the 
laborers is of course an element, the general pros- 
perity and hopefulness of employers is another 
element, and the amount and productiveness of 
capital is still another element, but this has more 
immediately to do with the wages of the next 
class to be considered in a moment. 

The wages of skilled laborers, namely, of those 
who have had to pass through something equiva- 



PRODUCTION. 101 

lent to an apprenticeship in order to be able to 
offer their services, offer some points of difference 
from those of common labor. In the first place, 
their numbers are fewer, because comparatively 
few parents can afford to give their children the 
time and the money needful for them to learn a 
trade, or to become skilful in any art requiring 
education ; and, as a result of this, their wages 
will rule higher than common wages, because the 
press of competition will be less felt among them, 
and because, being more intelligent and conse- 
quently mobile, they can better insist on their 
claims, and can better distribute themselves to 
points where tlieir services are in demand. In the 
second place, they are more likely to be subject 
to a strong demand than common laborers are, on 
account of the close connection of their labor with 
special accumulations of capital. 

We must here anticipate the discussions of fol- 
lowing paragraphs so far as to say, that capital is 
the aggregate of all products reserved as a means 
for further jjroduction ; that accumulations of cap- 
ital are in their very nature a standing demand for 
laborers ; that buildings, machinery, raw materials, 
and all the appliances of manufactures of all sorts, 
are a special demand for skilled laborers, because 
they alone can run this machiner}-, work up these 
materials, and make these whole investments of 
capital profitable to their owners ; that the more 
capital of all kinds invested in branches of indus- 
try requiring skilled laborers to carry them on, the 



102 POLITICAL ECONOMY. 

stronger the motive of the owners to employ the 
laborers, inasmuch as no profit comes from idle 
investments, but rather a constant loss besides the 
loss of profit ; and that, in consequence of all this, 
the rate of wages of skilled laborers is sure to be 
higher than that of common laborers, and, as capi- 
tal increases and business is prosperous, is likely 
to become still higher and relatively constant. 
Many forms of capital are more immediately 
dependent upon skilled laborers than upon com- 
mon, and there is often a competition among 
employers for such laborers, and in profitable 
times they occupy an enviable position, capital 
being dependent upon them for its profit and in- 
crease. At the same time, common laborers will 
share to a lower degree with skilled in the benefits 
of a prosperous ongoing of the various industries. 
They are adjuncts to all mills, factories, and enter- 
prises. The more products created in the higher 
departments the more work to be done in the 
lower departments. Even domestic servants feel 
the influence in a rise of wages of a general and 
continued prosperity of capital. Still, it remains 
true, that such prosperity affects more immediately 
and largely the wages of skilled laborers. The 
interdependence of labor and capital, and the cor- 
dial relations that should always subsist between 
them, will be better displayed after we understand 
better the nature and forms of capital. 

Professional labor is the highest form of personal 
services rendered for pay, because it involves the 



PRODUCTION. 103 

most of time and expense in the way of prepara- 
tion, because it is most often connected with high 
natural abilities and genius, and because for these 
reasons it receives the highest remuneration. It 
is not pretended that a sharp line can be drawn 
between professional and skilled labor, any more 
than between skilled and common labor, and we 
do not confine the adjective " professional " to 
what used to be called the three learned profes- 
sions, theology, medicine, and law. We mean by 
professional labor the services of those who have 
received a technical education (not an apprentice- 
ship) expressly to fit them to render these services, 
and who have the requisite character, talents, and 
genius to enable them to succeed. Clergymen, 
physicians, lawyers, literary men, artists, actors, 
and many more, render professional services loosely 
so called. The obstacles at the entrance to this 
path, occasioned by the lack either (1) of appro- 
priate natural gifts, or (2) of the requisite industry 
and character, or (3) of the means of a suitable 
education and training, practically exclude so 
many persons, that the competition in the higher 
walks of professional life is not such as to prevent 
a large remuneration for services rendered. Com- 
paratively few men reach a high point of excel- 
lence in their respective professions, and they 
have in consequence what may be called a natural 
monopoly in these fields of effort, and receive for 
their labor a very high rate of wages. 

The competition in the professions would be 



104 POLITICAL ECONOMY. 

less than it is, if men entered upon tliem solely 
on economical grounds, and if the needed educa- 
tion had to be fully paid for as other things are 
paid for ; as it is, the respectability which attends 
them, the desire of knowledge for its own sake 
which is gained in connection with them, the 
instruction wholly or in part gratuitously offered 
to those in course of preparation for them, and the 
desire to do good which actuates many who enter 
upon them, all these increase more or less the com- 
petition in professional labor. It may be worth 
while, just in passing, to note, that moral conside- 
rations mingle in with the economical much more 
in the higher than in the lower walks of effort, 
although we are concerned with the moral consid- 
erations merely as they bear upon the economical. 
For example, we are concerned with the clergy- 
man's salary, with the services he renders for 'pay^ 
but we may note the fact that there are more 
clergymen than there would be, if the pay were 
the only motive to enter the ministry, especially 
as the moral motive influences in turn the amount 
of the pay. So, too, the underlying character of 
a man, except so far as it may affect tha accept- 
ableness of his paid-for services, is economically a 
matter of indifference ; but then there are some 
services, like those of the preacher, the teacher, 
the treasurer of corporations, and others involving 
great trust, which depend so directly upon moral 
character, that Ave are bound to observe the points 
of contact, especially again as the comparatively 



PRODUCTION. 105 

small number who have all the other requisites 
for such trusts is still further reduced by the em- 
ployers insisting upon the additional quality of a 
character recognized to be good, which scruple 
undoubtedly enhances the pay of the few who 
have all the required qualities. Character, how- 
ever, it must be insisted, though it has its points 
of contact with things to be sold, stands on ground 
very distinct from them. Skill, for instance, is 
acquired to sell ; character, if genuine, is main- 
tained for its own sake, and will never compromise 
itself for the sake of gain. 

It must be added, in explanation of the high 
wages of professional labor, that the demand is 
often peculiarly intense, as well as the supply 
peculiarly limited. If great interests of property, 
of reputation, or of life are at stake, it is felt that 
the best men to secure these must be had at 
almost any price. Fees and rewards for services 
of great delicacy, of great difficulty, or great dan- 
ger, are paid by individuals and corporations and 
nations without grudging. Persons able to confer 
an exquisite pleasure, particularly if the pleasure 
can be conveyed to a great many persons equally 
at the same time, by oratory, reading, singing, 
playing, acting, and so on, secure extraordinary 
returns for their efforts. Beecher, Dickens, Cusli- 
man, Lind, Rubenstein, Rachel, will occur to 
every one as illustrations. 

Labor is eflPort put forth in the way of exchange, 
and is equally honorable whether common, skilled, 



106 POLITICAL ECONOMY. 

or professional. Indeed, at bottom, there is but 
one class of laborers. Our superficial classification 
has been used for convenience merely. Political 
Economy makes no radical distinctions as between 
its toilers, offers a fair field for all according to 
their abilities, and has its " well-done " for the 
patient husbandman, the ingenious mechanic, and 
the eloquent advocate alike. Labor is blessed ; 
but let no exchanger trifle with private morals, 
with the public health, or with the revenues of 
his country. Even Science, while claiming all 
its own field, may deprecate infringements in its 
name upon the neighboring fields. 

" God speed the ship ! — But let her beax 

No merchandise of sin, 
No groaning cargo of despair 

Her roomy hold within. 
No Lethean drug for Eastern lands, 

Nor poison-draught for ours; 
But honest fruits of toiling hands 

And Nature's sun and showers." 

This is the place to explain briefly what politi- 
cal economists mean by the Division of Labor. 
The phrase, which is the title of the first and 
most famous chapter in Adam Smith's Wealth of 
Nations, was not very aptly chosen, though it has 
become a settled phrase in our science, and its 
meaning is the dividing up of a complex process or 
employment into particular parts in such a way that 
each person employed may devote himself wholly to 



PRODUCTION. 107 

one section of the process. The proposition is, that 
by this division, the labor of each person becomes 
more efficient and the production as a whole more 
profitable. This must be so, because different 
persons have varying aptitudes according to natu- 
ral gifts and previous training. It is one of the 
grand things about exchange in general, that it 
gives room for everj^ kind of talent, for every 
degree of strength, for every variety of accom- 
plishment the result of training, for every sort of 
service which all sorts of men are able to render. 
Nature speaks through all this variety of gifts and 
opportunities, in as loud a voice as she can utter, 
in favor of the freest possible exchanges among 
men everywhere, since thus only can these re- 
markable diversities be fully utilized to their pos- 
sessors and to the world. 

The doctrine of the division of labor is only 
a particular application of this general truth. 
Within any single branch of production, there are 
usually parts and possible divisions of the process. 
If, now, different persons are put to these differ- 
ent parts of the work according to their strength, 
ingenuity, acquired skill, and power to organize 
and command, it is plain, that the work will be 
far more cheaply, easily, and rapidly done, than if 
the operatives had to pass from one part to anoth- 
er, and all try to learn all the parts. Under divi- 
sion of labor, the easier parts may be performed 
by women and children, whose labor is less ex- 
pensive ; the ruder parts by ruder and cheaper 



108 POLITICAL ECONOMY. 

hands ; and only the more difficult and delicate 
parts by the more skilful and expensive workmen. 
Adam Smith illustrates the division of labor by 
the manufacture of pins, as that was carried on in 
his day. One man draws out the wire, another 
straightens it, a third cuts it, a fourth sharpens the 
points, a fifth grinds it at the top for receiving the 
head ; the making the heads consists of two or 
three distinct operations, each confided to a single 
person; the remaining processes are similarly 
divided up, and the result is, that in a single es- 
tablishment, employing only ten persons, 48,000 
pins are made in a day, while if each man went 
through all the processes himself, he could hardly 
make 20 pins a day, or 200 for the whole estab- 
lishment. Of English watch-making by hand, 
there are said to be 102 distinct branches, to each 
of which a boy may be put apprentice, and when 
his time is out be unable to work at any other 
branch without further instruction, the watch-fin- 
isher being the only one able to work in other 
departments than his own. If my readers will 
take the opportunity to visit any factory working 
cotton, wool, wood, or metals, and observe for 
themselves the acquired skill, the rapidity of 
movement, the economy in tools, and the cheap- 
ness from classification, under the division of labor, 
they will be more impressed than any words of 
mine can impress them by its economical advan- 
tages. 

A summary of these advantages may be put as 
follows ; — 



PEODUCTION. 109 

1. The improved dexterity, corporeal and intel- 
lectual, acquired by the repetition of one simple 
operation, instead of many operations consecu- 
tively. 

2. The saving of time lost in passing from one 
kind of work to another, and in the change of 
position and tools. 

3. The invention of improved implements and 
processes, because a simple task is just what ma- 
chinery can be made to perform, and just what an 
operative with his mind on it is likely to devise 
machinery for. 

4. The saving of the waste of materials, partly 
as the result of the improved dexterity, and part- 
ly as the result of the shorter time required to 
finish up the product. 

5. The more economical distribution of labor by 
classing the operatives according to their strength, 
tastes, skill, and costliness. 

6. The saving in tools, which, being now in 
constant use and thus yielding a better return on 
their cost, can be afforded of a better quality. 

7. The division of labor between the wholesale 
and retail trades brings producers and consumers 
into safer relations, through a better understand- 
ing of the local markets, and a consequently 
better control of the various streams that feed the 
wholesale reservoirs. 

I think there are some disadvantages resulting 
from a division of labor : — 

1. The work in some departments becomes 



110 POLITICAL ECONOMY. 

monotonous and irksome from its simplicity, while 
some diversity of employment would afford relief 
by calling out different muscles, or different facul- 
ties of the mind. 

2. There is some tendency to dwarf the mental 
and corporeal powers, through exclusive attention 
to one part only of a complicated process. 

3. A person has less power to adapt himself to 
a change of circumstances, and becomes more de- 
pendent on the continuance of the business in 
that form, after he has learned and long made the 
means of a livelihood a single part of a process, 
than if more versatility had been allowed him. 

The degree to which the division of labor can 
be carried, depends (1) upon the extent of the 
market, and (2) upon the nature of the employ- 
ment. For example, if the market will not take 
48,000 pins a day, the division of labor cannot be 
carried so far, some of the ten persons must be 
discharged, or else they will remain idle a part of 
the time, some of the separate parts will be com- 
bined, and each pin will cost more than before 
from the limitation of the market. The other 
expedient sometimes adopted under a dull market, 
of working but half or three-quarters time and 
endeavoring to keep up full division of labor dur- 
ing the shortened hours, is apt to take on the 
other form or be combined with it, inasmuch as it 
is difficult to hold a full complement of hands to 
a considerable period of short hours. In either 
case, production becomes less efficient from the 



PRODUCTION. Ill 

limitation of the market. Limitation of the 
market is itself usually caused either (1) by some 
miscalculation about the kind of goods the mar- 
ket will take at that time, or (2) by some arti- 
ficial restrictions on trade shutting up a market 
otherwise open, or (3) by some use of an inferior 
money which never fails to bring in as a sequel 
commercial dulness and disaster. Under free- 
dom, a universal limitation of the market is im- 
possible ; since the desires of men, which the 
efforts of other men can satisfy, are ever active 
and increasing ; and since the efforts of men in 
production may find a scope and a market, until 
these desires of all men are all met, — which can 
never possibly happen. Production, accordingly, 
is most profitable when the market is broad 
enough to allow a full division of labor, and full 
employment during all the usual or legal hours 
of work ; and, the market being presupposed, is 
more likely to be profitable in large establish- 
ments than in small, because, (1) the division of 
labor can be carried to a fuller extent ; (2) more, 
and more perfect, machinery can be afforded ; (3) 
relatively less superintendence is required ; and 
(4) the scraps and ends of a large business may 
justify one or more subordinate branches in con- 
nection with the main business. On the other 
hand, there is a counter-working principle in favor 
of small establishments, that these are usually 
owned and managed by individuals instead of a 
company, and that the " zeal of limited owner- 



112 POLITICAL ECONOMY. 

ship " in its economy and painstaking fidelity is 
sometimes more than a match for the otherwise 
superior advantages of great corporations, which 
have to be served by hired agents exclusively. 

The nature of the employment also limits the 
degree to which the division of labor can be ap- 
plied. Agriculture, for example, because its pro- 
cesses cannot be made simultaneous, can never 
allow of this division so much as most other forms 
of production. The farmer, more than most 
others, has to wait upon Nature. No effort of his 
can bring the re aping-time nearer to the sowing- 
time. He himself must learn to do all the parts 
of farm-work in succession. We have already 
learned the reason why machinery can never be 
applied in agriculture to the same extent as in 
manufacturing, much as that fact discredits the 
etymology of the word manufacture ; and we have 
also learned that the law of diminishing returns 
applies to all agriculture everywhere. These three 
facts, taken together, furnish the ground for the 
important truth, that agricultural products tend 
constantly to rise in value as compared with other 
commodities. 

The third and last requisite of production is 
Capital. This word, which is derived from the 
Latin word Caput, a head or source, carries along 
with it always the meaning of its root. How- 
ever otherwise defined, the word always implies 
that that denoted by it is a source of further 
production. The common word cattle, and the 



PRODUCTION. 113 

law term chattels, are both derived from tlie same 
root, though they do not hold so distinctly as 
ccqntal does the root-signification. I give, with 
much confidence that it will be found to cover all 
the cases, the following definition : — Capital is 
any valuable thing, outside of man himself, from 
whose use springs a pecuniary increase or j)^ofii- 
Capital itself is always a product, and its nature 
as capital is conferred on it by the determination 
of its owner to use it for the sake of an increase 
to come by means of it. Many products are 
devoted to the gratification of present desires, 
without any reference to the rendering of future 
services by means of their help. Such products 
are not capital. They are valuable, but capital 
they are not. Capital is a smaller class under the 
great class Values. Capital, too, must never be 
confounded with personal powers, although the 
boundary between the two is hopelessly confused 
by the definitions of Mr. Carey and Mr. Macleod. 
Personal powers are only brought into the world 
of value through Labor, and the reward of labor 
however skilful is Wages, and wages are a return 
for the exercise of personal powers through labor, 
and not an increase seciu"ed by means of them. The 
primary notion of capital is lacking in any proper 
view of personal powers, or their exercise for pay; 
and hence, I do not hesitate to say, that capital is 
always either a commodity or a claim, since these 
alone can be reserved as a source of further pro- 
duction. Personal powers cannot be sold, because 



114 POLITICAL ECONOMY. 

they cannot be parted with ; their exercise through 
labor may be sold, and this is wages; but each 
renewed exercise of them through labor must be 
paid for independently, that is, fresh wages may 
be received, the labor is worth so much ; but in all 
this, we do not get beyond the idea of a return^ 
while it is essential to capital that it have the 
power of increase. 

When it is said that a young man's integrity, or 
his acquired skill, is his capital^ the word is used 
in a metaphorical, not in a scientific sense. The 
meaning is, that these qualities are like capital in 
some respects. Capital can always be parted with, 
and become fruitful in the hands of another, unless 
the owner prefer to retain it himself for further 
use in production. As an example of all this, 
take a steam-engine in a lumber-mill ; the owner 
can sell it any day, if he choose, for $1,000 ; if he 
sell it, that $1,000 is a simple return^ which indeed 
he may transform into capital by loaning it out at 
interest, or by buying another steam-engine with 
it for his own use ; but if he choose to retain the 
first engine, it is because he expects something 
additional to the $1,000 from the use of it ; he 
expects, perhaps, to gain $100 net for the use of 
it for a year, and then to be able to sell it for 
$1,000, or, if he wear it out by use, to get in con- 
sequence of its use not only his $1,000 back, but 
a yearly profit additional. This illustrates the 
nature of capital, and affords a correct definition 
of the term profit. Profit is the increase from the 
use of capital. 



PEODUCTION. 115 

As capital is a product to start with, it cannot 
be said to be, as labor is, an absolutely essential 
requisite to production, but production can go on 
but a very little way without capital in some form, 
as we shall see shortly, and so it is proper to affirm 
that the three requisites of production are natural 
agents, labor, and capital. It is the intention of 
the owner that transforms a simple product into 
capital. As a product, he can sell it at will, use 
the return for the gratification of the wants of 
his family, or in gifts of benevolence ; but if he 
chooses instead to employ it as a help in further 
production, if he abstains from the present enjoy- 
ment of it, or its proceeds, if he saves it for the 
sake of a future increase of its value, he trans- 
forms it at once into capital. You cannot tell by 
the looks of a thing whether it is capital or not : 
that depends upon the use to which it is to be put. 
The origin of all capital, accordingly, is in absti- 
nence ; and the reward of this abstinence is profit. 
The amount of capital in any community depends 
upon the foresight and frugality of the people, — 
depends upon their willingness to forego the 
present enjoyment of their values for the sake of 
greater values to be had in the time to come. It 
is a good thing for every man to lay by something, 
if possible, in the form of capital, either to use 
himself in his business, or to loan out to others on 
interest ; not only a good thing for him personally, 
and for his family, but for the community as well, 
since the economical progress of any community, 



116 POLITICAL ECONOMY. 

and especially the rate of wages paid to laborers 
within it, depend very much on the accumulations 
of capital there. The strength of the motives to 
abstinence will be the strongest where liberty of 
action, equality of privileges, and security of prop- 
erty are the greatest. 

It will be profitable for us to go over the prin- 
cipal forms which capital assumes as an aid to 
further production. First, Implements. We have 
seen that there are obstacles in the way of the 
gratification of human desires in all directions, 
and that these obstacles are only overcome by 
human effort. When a man devotes himself to 
one class of these obstacles, with a view to sur- 
mount them, he will quickly discover that, if he 
had certain tools, his work would be easier. Man 
is not like the beaver, Avhich gnaws down the tree 
with its teeth from generation to generation, but 
when he came to have occasion to fell trees, some- 
thing of the nature of an axe suggested itself to 
his mind. Once thought of, he would try to in- 
vent, or induce others to invent, an axe. Whether 
of flint, or shell, or metal, so soon as any thing 
was devised that made easier the labor of felling a 
tree, capital made a beginning along that line of 
obstacles. The first axe was a product of labor 
and abstinence. The labor bestowed in making it 
might have been bestowed on objects of present 
gratification, but it was bestowed rather on some- 
thing whose only use was to make easier future 
production. It was capital. Perhaps, among the 



PKODUCTION. 117 

more gifted races, progress in the way of tools was 
more rapid than we are wont to think it was, for 
we read that Tubal-cain, even in the times before 
the flood, " hammered all kinds of implements out 
of copper and iron." ^ The motive in inventing 
tools has always been the same, namely, to lessen 
some irksome effort which is the condition of a 
given satisfaction. This gives the key-note to the 
universal use and indefinite expansion of this form 
of capital. Natural agents, which are free, and 
whose power is indefinitely great, are made avail- 
able in production only through implements which 
are created by labor, and which, being retained as 
an aid to future labor, are capital. 

Witness the plough, the axe, the water-wheel, 
the steam-engine, the electric-machine, and a 
thousand more. Every implement, from the 
tiniest needle to the most ponderous engine, 
avails itself of natural powers in order to make 
production easier, increases satisfactions relatively 
to efforts, is itself a product retained for the sake 
of an increase to its own value to come by means 
of it, in short, is capital. Since it takes tools to 
make tools, and the new tools assist in making 
others, and since the motive to lessen onerous 
human effort by the substitution of Nature's forces 
is universal, there is a tendency, which facts ex- 
emplify, to a rapid progress in the number and 
perfection of the implements and machi)iery of 

1 Gen. iv. 22. The rendering in King James's Bible is very 
imperfect. 



118 POLITICAL ECONOMY. 

production; and because capital in this form al- 
ways brings gratuitous natural forces into service, 
the value of those things produced hy the aid of 
much capital tends to decline as compared with the 
value of other things, in whose production capital less 
conspires. 

Second, Raw materials. These are accumulated 
with sole reference to their being wrought up by 
means of labor and machinery into more valuable 
forms. Production looks to an increase in their 
value by a change in their form. Wool is raw 
material to the woollen manufacturer, though it is 
completed product to the wool-grower ; and cotton 
is raw material to the cotton-spinner, though it is 
completed product to the planter. Cloth is raw 
material to the tailor, and lumber to the cabinet- 
maker, and coal to all who use steam-engines in 
production. These materials, and many more, are 
destroyed as such, to re-appear directly or in- 
directly in higher forms of value. 

Third, Buildings used for productive purposes. 
These are erected to facilitate the processes of 
production, and their cost is expected to re-appear 
with a profit in the value of the products to which 
they minister. They include factories, warehouses, 
stores, shops, offices, and so on. These do not 
stand in their own right, so to speak, they stand 
in the right of the commercial services rendered 
by means of their aid. They are strictly capital, 
as a man's dwelling-house is not, because he builds 
that to live in, not to trade in. 



PRODUCTION. 119 

Fourth, Permanent improvements in land. Land 
originally costs nothing. It is a Natural Agent, 
the same as wind, or water. But permanent bet- 
terments in land are an investment made not sim- 
ply in view of a return, but also in view of a per- 
manent profit, which in the end, together with the 
improved land, shall be more in value than the 
investment. Owing to cheaper and better methods 
of subduing land constantly introduced, old in- 
vestments of this kind do not generally yield a 
present profit, although they may ; still, in inten- 
tion and nature, they are capital. 

Fifth, Investments in aid of locomotion, as in 
railroads, canals, ships, and every thing subsidiary 
to these. All such things as these are capital, if 
they are constructed with a view to pecuniary 
profit. The market-wagon, for instance, is capital, 
while the pleasure-yacht is not. The amount of 
capital invested in the United States in railroads 
alone, if it could be exactly ascertained, as it cannot 
be, would weary the very figures that expressed 
it, to say nothing of the minds that strove dis- 
tinctly to conceive of it. Much of this capital is 
now " sleeping " capital. According to " Poor's 
Railroad Manual " the bonded debts of the rail- 
roads of the United States, Jan. 1, 1875, were 
$2,000,000,000, of which, 40 per cent have been 
more or less in default, since the panic of 1873. 
This statement takes no account of the original 
" stock," or other debts, of the roads. Notwith- 
standing these losses of profit, and, in many cases. 



120 POLITICAL ECONOMY. 

of the entire investment, this form of capital is 
intimately associated with all commercial pros- 
perity. Transportation is an essential part of pro- 
duction, since the value of things depends almost 
as much upon where they are, as upon what they 
are. 

Sixth, Products loaned or rented, or retained 
for that purpose. These are so obviously capital 
as to require no explanation or remark. 

Seventh, Most funds destined for wages. Some 
wages, as those of most domestic servants, for 
example, are paid with no reference to an ultimate 
profit, but most wages are paid out for the pro- 
duction of something, which is itself to be resold 
for an increase upon its cost. Such a product, 
whether made for sale or bought for resale, is 
always capital, and so, consequently, are the wages 
paid for producing it, as well as the raw materials 
entering into it. 

Eighth, The national money. We have not yet 
learned the nature and forms of money, as we 
shall try to do hereafter with painstaking exact- 
ness, but we shall now assume what we shall then 
prove, that a nation's money is a product acquired 
just as other products are, that its value comes 
and goes under the same laws as theirs, and that 
it is an instrument absolutely necessary to any 
considerable development of exchanges. Because 
money is an instrument for making production 
easier, it is capital ; because it is " a valuable 
thing, outside of man himself, from whose use 



PRODUCTION". 121 

springs a pecuniary increase," it comes exactly 
under our definition. Because, as we shall see, 
money measures values, and becomes a temporary 
store for them, as well as helps exchange them, it 
is able, as capital, to help production in a great 
many ways. It is a kind of generalized capital. 
A steam-engine can only work in one place, and 
a power-loom can only do one thing, and all other 
forms of capital are restricted in the possible help 
they can render to production ; but money can 
make itself felt anywhere, can work in all sorts 
of harness, can buy materials, pay wages, trans- 
port products, hold in itself values and gains till 
they are wanted, migrate anywhere, become all 
things to all men. The nation retains its money 
for all these profitable uses. To the nation at 
large, therefore, all its money is capital. In the 
hands of individuals, however, some money may 
be temporarily non-capital, because it may be spent 
for gratification merely. In the hands of the 
next man, it may become capital again. As a 
whole, in its relations to the nation and the world, 
money is the most active, the most versatile, the 
most profitable, and the most enduring, of all 
forms of capital ; and no nation, consequently, 
can afford even for a day to have its money in 
respect of material, weight, or fineness, inferior 
to the best possible. The reasons that weigh in 
favor of the best possible machinery of all kinds, 
weigh with tenfold weight in favor of the best 
possible form of the most important implement in 
production — money. 



122 POLITICAL ECONOMY. 

A distinction is often drawn between Fixed and 
Circulating capital, and such a distinction may be 
made, but as it is of little practical importance, 
we pass it by, to notice the wonderful power of 
capital in reproduction. Everybody knows how 
soon even the ordinary interest of money, if 
regularly compounded with the principal, will 
double that principal. Capital breeds capital. 
The rate of interest is usually reckoned by the 
year, but the rate of profit may be reckoned by 
the day, the week, the month, or by shorter irreg- 
ular intervals. Mr. Samuel Hooper, a Massachu- 
setts merchant, once shipped goods to China cost- 
ing in Boston $8,000 : he sold these goods in the 
port of destination for $50,000, and invested this 
sum in goods there for shipment to the United 
States ; and this return cargo was sold in Boston 
for $100,000. What was his rate of profit ? Dis- 
carding the other expenses of the voyages, and 
supposing them to have occupied a year's time, 
his rate of profit was 1250 per cent 'per annum, 
that is, the ratio of his investment to his return 
was 1 to 1250. 

Mr. Macleod mentions some interesting facts as 
exhibited in the retail provision trade of Paris: 
many years ago, the money lenders charged the 
petty dealers two sous a week for the loan of three 
francs : that is interest at the rate of 173 per cent 
per annum : but if the dealer sold his three francs' 
worth of victuals for three francs and a half every 
day, as is likely, his profit, omitting Sundays, 



PRODUCTION. 123 

would be at the rate of 5216 per cent per annum : 
only a few years ago, a member of the Legislative 
Assembly said in a speech, that a five-franc-piece 
borrowed in the morning would buy provisions 
that might be sold in the course of the day for 
eight francs ; that 25 centimes were paid in the 
evening without complaint as the interest on the 
money ; and that is at the rate of 1800 per cent 
per annum, while the rate of profit is 21,600 per 
cent per annum, or twelve times the rate of inter- 
est. All these instances are exceptional, but they 
illustrate the better the nature of capital to grow. 
Even at a very small ratio of profit to principal 
on each transaction, a money capital turned rap- 
idly over accumulates with a startling, almost 
incredible rapidity. Hence the excellent maxim, 
Quick sales and small profits. 

Equally wonderful is the power of capital in 
the form of machinery to hasten, facilitate, and 
accumulate production. Even now, grain may be 
loaded every day in the year at any one of the 
interior railroad stations in the great North-west 
of the Union, and be offered for sale in New York 
within fifteen days, or, if the foreign market be 
preferred, be offered in Liverpool in fifteen days 
more. The saving of small sums for directly pro- 
ductive uses, or for loaning out to such uses, by 
many persons at the same time, is the secret of 
the increase of the national wealth ; and savings- 
banks under secure conditions cannot be too 
highly commended, which gather up the driblets 



124 POLITICAL ECONOMY. 

of capital, pay interest on them to the owners, 
and then loan out to productive operators on good 
security in considerable sums these savings of the 
people. 

As countries become older and more prosperous, 
and capital in all its forms accumulates, there is a 
strong tendency in the rate of profit to decline. 
This is proved by experience, and might perhaps 
be inferred from the law of Supply and Demand. 
The rate of interest, which, though always less 
than the current rate of profit, is a correct gauge 
of that rate, has pretty steadily fallen for cen- 
turies in England and Holland, and has fallen 
already in the older parts of the United States as 
compared with the newer. The British govern- 
ment paid the Bank of England 8 per cent inter- 
est on a public loan less than two centuries ago : 
it now pays the same institution but 3 per cent. 
Some important consequences follow from this 
decline. One is, that laborers as a class are more 
benefited by all increase of capital than are capi- 
talists as a class. As the rate of profit goes down 
as a result of the increase of capital, a smaller 
share of the proceeds of every hundred of capital 
invested goes to the capitalist, and a larger rela- 
tive share to the laborer, since the two between 
them share the whole proceeds, taxes excepted. 
There is still a motive to save, aggregate profits 
are larger than before though the rate is less, capi- 
talists as a class are better off than before ; but 
laborers as a class are relatively still better off 



PBODUCTION. 125 

than before, for if less goes to the capitalist and 
more to the laborer on every hundred and there 
are more hundreds than ever, of course relatively 
more goes to the laborers from the increase of 
capital than to the capitalists themselves ! This 
is a lever, my readers will thankfully observe, 
that lifts on the masses of men ! Another impor- 
tant consequence is, that the value of things pro- 
duced hy the help of much capital will decline with 
the declitie of the rate of profit relatively to things 
produced hy the help of less capital and more labor. 
That is to say, the creation of new capital, and 
the fall in the rate of profit, will make cheaper, 
relatively to a money standard, to agricultural 
products, to all other products in which capital 
less conspires, and especially to labor in which 
capital does not conspire at all, all those products 
produced by the help of more capital. Let it not 
escape the penetration of anybody, that the great 
underlying forces of production are no respecters 
of persons, but, like their Author, work unseen 
for the elevation of all men. 

It will not take us long now to determine the 
elements of the Cost of Production. This 
phrase is not relevant as applied to personal ser- 
vices merely, or to claims, but only to commodities 
produced by labor hired or estimated as hired and 
by conspiring capital. For example, a managing 
editor would not ask an editorial writer about the 
cost of production of his article, nor the buyer of 
a railroad bond inquire after the cost of production 



126 POLITICAL ECONOMY. 

of tliat bond, — the phrase would have no meaning 
as applied to these, — but it would be very rele- 
vant as applied to a case of boots offered at whole- 
sale, indeed, in most cases, it would be the element 
determining the value. Now, natural agents are 
free, and only labor and capital are paid agents in 
production. Something, it is true, has to go in 
the way of taxes, but these can be disregarded 
for the present. The onerous elements in pro- 
duction are two, labor and capital, that is, effort 
and abstinence, and both are irksome, and if we 
can find out what the elements of these are as 
hougJit^ we shall know all the elements of the cost 
of production, and this will be in all relevant 
cases the exact measure of what we have called 
the Effort in contradistinction from the Desire. 
Sometimes two things, both of which have a true 
cost of production, exchange against each other, 
and very often all things exchange against metallic 
money, which also has a true cost of production, 
and, therefore, in determining the elements of 
this, we go a good way into the very heart of 
value. 

Cost of labor is made up of three elements 
always ; — (1) Efficiency of the labor, and (2) 
The rate of nominal wages paid, and (3) The cost 
to the employer of that in which the wages are 
paid. To illustrate ; — If an employer hire two 
men at the same wages, and one is twice as efficient 
a laborer as the other, the cost of his labor is one- 
half less than the cost of the other's labor ; or, if 



PRODirCTION. 127 

the employer accustomed to pay one dollar per 
day is now obliged to pay one dollar and a half 
per day, the efficiency of the laborers being now- 
considered the same, the cost of labor is increased 
in the ratio of 2 to 3 ; or, if, nominal wages and 
efficiency of labor remaining the same, the cost of 
that, whether money or other product, in which 
wages are paid, varies, the cost of labor varies of 
course. If nations unwisely, as the United States 
have done since 1862, discard metallic for paper 
money, that is, substitute for a true commodity 
a credit-claim because it is cheaper, then the rate 
of nominal wages ceases to be any correct indi- 
cation of the cost of labor, and hence of the cost 
of production. The above analysis flings to the 
winds a host of conclusions drawn by superficial 
writers from differences as between different 
countries in the rate of wages. Rate of wages is 
not cost of labor. It is only one element in a cost 
of labor. There may be a very great difference 
in the rate of wages as between England and the 
United States, for example, and no difference at 
all in the cost of labor, or even the cost of labor 
may be the least in the country in which the rate 
of wages is the highest, on account of the superior 
efficiency of the labor there, or the cheapness of 
the medium in which wages are paid there. These 
three elements of the cost of labor must always be 
borne in mind in all discussions about wages, 
otherwise the arguments will be fallacious of course, 
the word " wages " in such discussions sometimes 



128 POLITICAL ECONOMY. 

meaning " rate of wages " and sometimes " cost of 
labor," — two very different senses of the same 
word ; and persons attempting productive enter- 
prises of magnitude, particularly those coming 
into competition with similar enterprises abroad, 
cannot safely neglect this analysis, although the 
superior efficiency of labor in this country probably 
more than neutralizes the higher rate of wages so 
far as " cost of labor " is concerned. 

Cost of capital is made up of three elements 
also ; — (1) The rate per cent, and (2) The time 
for which the capital is advanced, and (3) The 
form of the capital as liable to wear out quickly 
or otherwise. To illustrate these elements in 
their order, let us suppose the rate per cent at 
Amsterdam to be 3, and the rate at New York to 
be 7, the cost of labor to be equal in the two cities, 
the time of advance one year, and no liability of 
the capital to wear out, then a commodity made 
at Amsterdam with an outlay of $100 can be sold 
without loss for $103, while a similar commodity 
made in New York cannot be sold for less than 
$107, — the rate per cent of capital being an 
important element in the cost of capital and hence 
in the cost of production ; now, let the same sup- 
positions be continued, except that the time of 
advance in New York be extended to four years, 
then the Dutch product will sell as before at $103, 
but the New York product for not less than $131, 
— the time of advance making a striking difference 
in the cost of capital, giving a sort of monopoly 



PRODUCTION. 129 

in enterprises requiring large capital and long 
periods before returns are realized to low-interest 
countries ; lastly, suppose two establishments, in 
each of which is invested a capital of $11,000, in 
one of which is a machine costing $1000, which 
will be wholly worn out by one year's use, and 
in the other a machine costing the same, but 
lasting ten years, and suppose the rate per cent 
be 10, and the time one year, then, all other ele- 
ments being equal, the commodity made in the 
first establishment must sell for $2100, while the 
commodity made in the second can sell without 
loss for $1200, — so important an element is dura- 
bility in the cost of capital and hence in the cost 
of production. The durability of metallic money, 
as the most important form of capital, is one 
reason why countries which maintain it can under- 
sell so far forth the countries which abandon it. 

Cost of production, made up of these six factors, 
is a vital matter in all interchange of commodities ; 
while it illustrates the necessity of forethought 
and great intelligence in order to successful com- 
mercial activity, that all these factors must be 
constantly attended to, and efforts be constantly 
made to lessen through one or more of these fac- 
tors the cost of production in order to maintain a 
firm footing in competitive enterprises. The 
points at which efforts can be made with the most 
success to lessen the cost of the production of 
commodities are (1) to make the efficiency of 
labor greater by helping laborers to be more intel- 



130 POLITICAL ECONOMY. 

ligent, temperate, industrious, and frugal ; and 
(2) to lessen the time of advance in capital by 
improved methods of production and transporta- 
tion, so as to make returns wait as quickly as 
possible upon investments. 

It only remains in this elementary discussion of 
production, to call attention to a beautiful gener- 
alization, which gathers up and holds firmly most 
of the results to which we have already come, 
namely. The value of finished commodities tends 
steadily to decline towards the value of the raw 
materials out of which they are formed. This is 
owing to a constantly lessened cost of manufac- 
ture. The lessened cost of manufacture is owing 
to an increased use of capital in the form of im- 
proved machinery for transformation and trans- 
portation. The increased use of capital is owing 
to the habit of saving, and to the arts of inven- 
tion, by means of which free powers of nature are 
more and more substituted for aching human 
muscle. The result is, that a pound of raw cotton, 
for example, is approximating the price of the 
cotton cloth that is made out of it, — less and less 
of the price of a commodity being due to the 
process of producing it from the raw material. 
This great tendency, which God has inwrought 
into the very framework of things, does not, in a 
large view, harm laborers as such, who have some- 
times supposed themselves to be harmed thereby, 
because (1) labor is always required for the con- 
struction and repairs of all labor-saving appliances, 



PRODUCTION. 131 

and, so far forth, a new market for labor is opened 

up in place of any loss of market resulting from 
their introduction, and (2) the now cheaper 
products find a wider circle of consumers, and new 
labor is required to produce and distribute them, 
and (3) the commodities consumed by the laborers 
themselves are also cheapened by the new methods, 
and a given rate of wages secures for them a 
higher grade of comforts. 



132 POLITICAL ECONOMY. 



CHAPTER III. 

COMMERCE. 

It might seem as if the mutual benefit of 
exclianges were sufficiently demonstrated in the 
preceding chapters, which unfold their nature and 
processes. There are always two parties to every 
exchange, each of whom has something and wants 
something else, neither of whom is under any 
obligation whatever to part with what he has for 
what he wants, both of whom are in the very 
nature of the case the best judges both of what 
they have and of what they want, and it would 
certainly seem as if, so long as it is a matter of 
pure free-will and of personal advantage, and so 
long as the public morals, health, or revenue, are 
not infringed thereby, they might be allowed to 
make their exchange without let or hindrance on 
the part of anybody. The liberty to exchange 
does not compel anybody to exchange, does not 
recommend anybody to exchange, does not even 
bring any inducement of any kind to lead any- 
body to exchange ; it simply permits those to ex- 
change whose personal advantage in their best 



COMMERCE. 133 

judgment would be promoted by an exchange. 
Common sense pronounces in favor of such liberty. 
Political Economy pronounces in favor of such 
liberty. But some governments, and notably the 
government of the United States at present, inter- 
fere with this liberty, practically deny the right 
of their people to exchange their own property 
for other forms of property in accordance with 
their own best judgment of their own advantage, 
and, putting up legal barriers across the path of 
exchange, announce pains and penalties for those 
who presume to part with what is their own for 
the sake of getting thereby what they want more. 
This action of governments, particularly of our 
own, makes it needful for us to examine more 
definitely still into the nature of Commerce^ to 
investigate the alleged reasons for restraining it, 
and to vindicate for all Exchange, both domestic 
and foreign, its fair and natural Opportunity. 

The English word Commerce is commonly 
applied to exchanges between citizens and foreign- 
ers, but there is nothing in the origin or meaning 
of the word that should so restrict its significa- 
tion. It is derived from a Latin word, which 
means an exchange of goods^ and it is just as 
proper to speak of domestic commerce as of for- 
eign commerce, inasmuch as commerce, no matter 
who the parties to it are, is essentially one and the 
same everywhere. It is plain, that the motives 
to an exchange and the gains of an exchange are 
precisely the same, whether the parties to it belong 



134 POLITICAL ECONOMY. 

to the same nationality or are of different nation- 
alities. The accident of citizenship is a very- 
important matter in certain relations, but it is a 
wholly indifferent matter when one comes to buy- 
ing and selling. For example, I happen to live 
in the north-west corner town of Massachusetts: 
two miles west of my house is the line of New 
York, and two miles north of my house is the line 
of Vermont; now, does it make any difference 
with me in buying butter or maple sugar, whether 
I buy them of a New York neighbor, of a Ver- 
mont neighbor, or of a Massachusetts neighbor? 
Does the accident of state lines have any thing to 
do with the benefits of a trade ? 

I can assure my readers, that, as a matter of 
fact, nobody in this locality pays any attention at 
all to these lines in the way of business. Ver- 
monters and New Yorkers come hither and go 
hence in traffic just as freely as Massachusetts 
men do, and exchange with them is just as profit- 
able on both sides as if all lived in one state. 
" But all do live in one nation" somebody inter- 
poses. Very true. But what has that to do with 
it? Shift the scene from the south end to the 
north end of Vermont, and there are neighbors on 
both sides of an imaginary line, who do not live 
in one nation. May not the Canadians and the 
Vermonters trade freely and advantageously across 
this imaginary line ? The law thunders, No ! I 
was reading in the paper this very day, that a 
Vermonter bought two quarts of rum across the 



COMMERCE. 135 

line to help him through his haying, and was 
intercepted on his return by the revenue-officer, 
who took away his rum, horse, and a brand-new 
wagon ! I do not approve of the Vermonter's 
taste in buying rum, but I have a very definite 
opinion, and shall proceed to give the grounds of 
it, about a system that visits penalties, not in the 
interests of revenue, for trading across any ima- 
ginary line. 

The Constitution of the United States goes a 
good way towards securing the benefits of a free 
commerce to all the people of this country. It 
forbids all taxation, by national as well as by state 
authority, of goods in passing from one state into 
another ; and it secures the right of each citizen 
of a state to sell his personal services of every 
legal kind in all the other states of the Union. 
These two provisions secure a domestic commerce 
absolutely free ; that is to say, no state can tax 
goods coming into it from another state, nor tax 
citizens of other states as such on the exercise of 
their trades within that state ; and national taxes, 
if laid within the country, must be uniform 
throughout the United States, while the local 
taxes of the states may make no discriminations 
either as to persons or to goods found within their 
jurisdiction ; so that, throughout the wide ex- 
panse of the country itself, containing great diver- 
sities of soil, climate, industries, and experience, 
there is a free interchange of commodities, ser- 
vices, and claims, possibly subject to a uniform 



136 POLITICAL ECONOMY. 

internal taxation by the nation, state, or munici- 
pality, whicli never lias for its purpose to prevent 
or lessen the exchanges, but only to draw a reve- 
nue out of their gains, which revenue is the larger 
as the gains are the more numerous. All this is 
just as it should be. Nobody complains that the 
domestic commerce of the country is too free ; 
nobody desires that artificial barriers should be set 
up, as between Louisiana and Massachusetts, for 
example, because of any differences in age, indus- 
tries, wages, rate of profit, or the like ; conse- 
quently, the good sense of the people of the 
country pronounces emphatically in favor of free 
exchanges within the country itself. Can they 
consistently do this, and at the same time be 
opposed to free international exchanges ? 

Moreover, the Constitution of the United States 
goes further in the direction of freedom. It ex- 
pressly forbids any tax whatever upon articles 
exported from any state. It thus guarantees not 
only a free domestic commerce, subject only to 
the claim of legitimate taxation, but also throws 
the shield of its defence around foreign com- 
merce, so far as all exports are concerned. The 
people of the United States have had the privi- 
lege for a hundred years of carrying out of the 
country without a tax any of their surplus prod- 
ucts for which they could find a market anywhere 
in the world. This little clause of the Constitu- 
tion has contributed immensely to the commercial 
prosperity of the country ; and the other clauses, 



COMMERCE. 137 

already referred to, securing the right of free in- 
terchange at home, have contributed to this pros- 
perity still more ; but all these have been more or 
less neutralized by the abuse of another clause of 
the Constitution giving Congress the power "to 
lay imposts," that is, the power to tax goods 
brought into the country from other countries. 
The goods carried out of the country they are 
forbidden to tax, but they have unlimited power 
to tax at their discretion imported goods. 

It is true, that the Constitution prescribes the 
purposes for which these taxes must be laid, 
namely, "to pay the debts, and provide for the 
common defence and general welfare of the 
United States ; " it is true also, that this language 
implies that these taxes are to be laid in order to 
get money to fulfil these purposes ; but it has been 
held by all the co-ordinate branches of the govern- 
ment, and the view has unfortunately been car- 
ried out into practice, that this clause authorizes 
Congress to lay such taxes on imports as shall 
lessen and even prevent their introduction, thus 
preventing the getting of money from these taxes, 
which would seem to destroy the constitutional 
purpose of them. I believe that the Constitution 
of the United States, fairly interpreted, allows of no 
taxes except such as are laid for the sake of bring- 
ing money into the treasury ; but however that 
point may be ultimately settled, I am prepared to 
show that taxes laid with any other view than to 
bring money into the treasury violate the funda- 



138 POLITICAL ECONOMY. 

mental laws of Political Economy, and are fol- 
lowed necessarily by loss and disaster. 

I shall assume now, that all my readers believe 
that free domestic exchanges are profitable, and 
should not be interfered with by anybody, and shall 
proceed to demonstrate that free foreign exchanges 
are profitable also, and should not be interfered 
with by anybody. A system that has been much 
praised in this and other countries under the name 
of " Protection to native industry," and that is 
still in full practical operation in this country at 
least, must be shown to be delusive in its name 
and nature, to be an obstacle in the way of natu- 
ral laws, to be iniquitous in its motive, and to be 
calamitous in its results. 

We have seen already, that all exchange pro- 
ceeds on a diversity of relative advantage. One 
man must be able to render something easier and 
better than another, and the second able to render 
something else easier and better than the first, 
before they two will exchange services with each 
other ; and when they have thus exchanged ser- 
vices, each has experienced a gain. So univer- 
sally in the realm of exchange. The diversity that 
lies at the basis of the trade comes partly from 
nature and partly from practice. The cotton- 
planter of Mississippi has an advantage, both 
natural and acquired, in the raising of cotton, 
over his fellow-citizen of Maine ; and the cotton- 
manufacturer of Maine has an advantage, both 
natural and acquired, in the working up of cot- 



COMMERCE. 139 

ton, over the planter of Mississippi ; and, accord- 
ingly, they exchange cotton for cloth to the 
mutual advantage of both. Climate, soil, labor- 
ers used to the sun, and practice, conspire to 
give his advantage to the planter : a mountain 
stream leaping to his wheel with a song, and an 
ingenuity and endurance common to him and 
his neighbors from a colder clime and a harder 
soil and a different training, conspire to give his 
advantage to the manufacturer. These and other 
irreducible differences exist for a wise reason even 
within each single country, and make it certain that 
profitable exchanges will prevail therein so long 
as ^"he world shall stand ; while greater and more 
irreducible differences as between different coun- 
tries indicate unmistakably the will of God that 
they shall continue to exchange with reciprocal 
benefits so long as the world shall stand. Some- 
times the ocean, sometimes a river, sometimes 
mountains, and sometimes only an imaginary line, 
divide the nations from each other ; and these 
barriers, wherever they exist, doubtless assist 
somewhat in the forming and maintaining of the 
differences on which trade depends, while the 
barriers themselves make somewhat more difficult 
the trade to which they indirectly minister ; and 
hence, how shallow and self-destructive is the 
logic, which infers from the existence of natural 
barriers, that some artificial barriers in addition 
are needful, since these, if they could be perma- 
nently established, as they cannot, would only 



\ 



140 POLITICAL ECONOMY. 

serve to prevent the trade to which they might 
otherwise indirectly minister. 

God made the world, and he made it wisely. 
He knew just what barriers to set up, considering 
all the ends that he had in view, some of which 
were doubtless more important than any interests 
of international trade. The applause of men cer- 
tainly, not to say the favor of God, has always 
rested upon those who have been successful in 
overcoming these natural barriers for the sake of 
an easier traffic and a more extended intercourse. 
It would seem to be nothing less than presumptu- 
ous, in view of the natural and constant induce- 
ments to trade that spring out of the God-given 
diversities among the nations, and in view of the 
universal feeling that a Mt. Cenis tunnel or a 
Suez canal is a great blessing, for certain men to 
deem themselves wise enough to set up at will 
artificial barriers to trade, and then to undertake 
to defend their barriers as an economical blessing 
to the world ! It would seem to be pretty clear 
beforehand, that such men must be mistaken in 
their supposed ability to improve on the world 
and to impose on the world ! 

These artificial barriers are brought into play by 
means of an instrument called a Tariff. The 
origin of the word will throw light upon the 
thing. The southernmost point of the Peninsula 
of Spain, which juts down into the Straits of 
Gibraltar, holds a town named Tarifa, so named 
from a Berber chief who crossed over from Africa 



COMMERCE. 141 

to reconnoitre the country previous to its conquest 
by the Moors. After the Moorish conquest in 
711, a castle was built on this spot, which com- 
'manded the straits, and vessels passing out of or 
into the Mediterranean were forcibly stopped, and 
compelled to pay " duties " on their cargoes at 
certain fixed rates. From this place and circum- 
stance, the word "tariff" passed into the English 
and other European languages. The facts just 
recounted give illustration, however, of something 
more than the origin of the word ; they illustrate 
the fundamental character of the thing; since a 
tariff, whether for Revenue, Protection, or what 
not, always demands something from somebody, 
and never offers to give any thing to anybody. It 
is always so much taken out. Its sign is minus, and 
not plus. In the given case, each ship that passed 
through the Straits was so much the poorer for all 
that was paid at Tarifa. It was not an exchange. 
It was robbery. It was black-mail. No one will 
try to defend the Moors for their act of extortion, 
but many, who try to defend a "protective tariff" 
so-called, forget its inmost nature, to which it is 
always true, namely, that it takes hut never gives. 
Even a " revenue tariff " so-called, like that of 
England, from which has been eliminated every 
purpose but one of fair taxation, is still only a 
series of demands. Thou shalt pay is the only 
thing a tariff says, or can say. Some people have 
got it- into their heads that a tariff is somehow or 
other a positively productive agent, a spur to the 



142 POLITICAL ECONOMY. 

progress of industry, sometliing indispensable to 
the ongoing of exchanges, while the fact is, that a 
tariff even in its best estate is only another name 
for taxes. A tariff in general may be thus de- 
fined ; — A schedule of taxes levied hy a government 
upon imported goods. 

But, though all taxes are so much abstracted 
from the pockets of the payers, the purpose for 
which the taxes are levied makes a great difference 
practically in the character and effect of the taxes 
themselves. On a moment's reflection, my readers 
will perceive, that all taxes of whatever kind must 
come out of the gains of exchanges, since there is 
no other way, gifts and stealing aside, for any man 
to get the money with which to pay his taxes 
except through exchanges. Those tariff-taxes, 
therefore, that are not designed to discourage the 
buying and selling of foreign goods, that do not 
aim to prevent or lessen exchanges, but only to 
withdraw a fraction of their gains for the use of 
government, are far less objectionable every way 
than those whose design is to lessen or prevent 
altogether the buying of the foreign goods on 
which the taxes are laid. Their character is 
different, their relation to exchanges is different, 
and their effect is different. The difference be- 
tween the two is just the difference between a 
revenue tariff properly so-called and a protective 
tariff properly so-called. A revenue tariff is a sched- 
ule of taxes laid upon imported goods with an eye 
to just taxation only. If such taxes are to bring 



COMMEBCE. 143 

in a good deal into the treasury (and that by the 
definition is their sole purpose) their rate must be 
low, so as not to prevent the buying of the goods, 
for in that case no revenue at all is received, but 
so as to allow the exchanges to take place as 
nearly as possible as before, only taking out a 
little from the gains of each particular exchange, 
and relying on the large number of exchanges to 
make up a good deal in the aggregate. The real 
interest of a revenue tariff is to have large impor- 
tations, for it has been found by experience, and 
might have been anticipated on principle, that a 
low rate of tax brings in more revenue than a 
high rate of tax, which last always decreases 
importations on which the tax is levied. The 
exact mean must of course be found out by trial. 

Then, in the second place, it is the interest of a 
revenue tariff, that the people shall pay no more 
money in consequence of a tax being levied than 
just the tax itself ; and, therefore, a proper reve- 
nue tariff will only put taxes on goods such as are 
wholly imported from abroad, and not also made 
or grown at home ; for, if tariff-taxes are laid on 
such imported goods as are similar to goods had in 
the country, then the effect of the imposts is to 
raise the price of both the imported and the simi- 
lar domestic goods, since they come into competi- 
tion with each other, and the imported goods of 
course are raised in price by the tax, so that, the 
people in this case are obliged to pay more in con- 
sequence of the tax than the tax realizes to the 



144 POLITICAL ECONOMY. 

government, whicli is against the interest of the 
revenue in general, and a revenue tariff in particu- 
lar. A few years ago, when the tariff-tax on salt 
was higher than it is at present, one-half of the 
salt used in this country was imported and one 
half domestic : the tariff-tax raised the price alike 
of all that was consumed, and the people paid 
twice as much on account of the tax, as the gov- 
ernment got from the tax, which is a very bad 
form of taxation as such, and which accordingly a 
revenue tariff will avoid, and lay its taxes on arti- 
cles which are wholly imported from abroad so 
far as possible, and if thought impossible in certain 
cases, it is still the interest of a revenue tariff as 
such, that an excise (a home tax) be laid to the 
same amount on the corresponding domestic goods, 
so that the principle be maintained throughout 
that the government shall get all that the people 
are made to pay on account of any tax. 

Also, in the third place, it is the interest of a 
purely revenue tariff that its taxes be laid on as 
few articles as will realize the needful revenue, 
and all other imported articles be exempted. 
People do not like to pay taxes ; and, besides, the 
taxes paid lessen by just so much the motives to 
continue the exchanges, which exchanges in turn 
are the only reservoir whence any taxes can be 
drawn. Accordingly, the commercial prosperity 
of any people depends very much upon the kind 
and amount of their taxation, and remissions of 
taxes have been found to work like magic upon 



COMMERCE. 145 

the ability of the people to pay taxes, by relieving 
them at several points and thus enabling them to 
pay more and easier at the one point. The buoy- 
ancy of trade is greatly promoted by relief from 
vexatious interference and onerous payment at 
many points, so that it becomes able and willing to 
bear comparatively large drafts at the one point 
selected by government. Whenever there are a 
few articles of universal consumption, like tea and 
coffee, which are wholly or mostly imported from 
abroad, and a few other articles, like wine and 
spirits, on the domestic production of which an 
excise corresponding to the tariff-tax on the im- 
ported part can be collected, a large revenue can 
be realized to the government through a tariff, 
whose rates shall be comparatively low, whose 
items shall be comparatively few, and whose bur- 
dens shall not be felt beyond the taxes actually 
paid to government. No very great objections lie 
against such a tariff as this, although we shall see 
in our chapter on Taxation that there is a more 
excellent way to get revenue even than this. It 
illustrates the feeling among intelligent men that 
all tariffs are destined to pass away, that the 
Emperor of Brazil, when shown a few days ago 
the new custom-house at St. Louis, and when told 
that it would last 400 years, exclaimed, " What ! 
You do not mean to say that there will be any 
custom-houses 400 years from now ! " 

What is deceptively called a " protective " tariff 
is directly the opposite of a revenue tariff in its 



146 POLITICAL ECONOMY. 

three fundamental principles as just sketched. No 
word could be worse chosen, if accuracy of descrip- 
tion were desired, than the word " Protection " 
to describe what passes under that name. Some 
persons may indeed be temporarily " protected " 
against foreign competition in their business by 
high tariff-taxes, but they are so protected at the 
immediate expense of all their fellow-citizens, and 
ultimately at their own expense. The system is 
short-sighted, greedy, and hence self-destructive. 
A protective tariff is a schedule of taxes laid on im- 
ported goods with a view to raise the price of certain 
home commodities, hy cutting off foreign competition 
in them. All the arguments of protectionists in 
favor of their system, and all their objections to 
free trade, imply when they do not affirm, that the 
purpose of " protection " is a rise of price of 
the " protected " commodities. We shall judge 
the protectionists by what they say, and also more 
especially by what they do, — when allowed to 
have their own way. We have had in this coun- 
try since 1861 an avowedly protective tariff, to 
which we shall go for illustrations of what protec- 
tion proposes and accomplishes. 

In the first place, in accordance with its ground- 
idea, a protective tariff levies very high taxes, so 
as to exclude the taxed commodity altogether, or 
to raise its price by means of the tax to the point 
to which it wishes to bring up the price of the 
protected home commodity. As a rule, there is a 
market price for similar commodities of the same 



COMMERCE. 147 

grade, and foreign and domestic commodities of 
one grade tend toward one price ; and if the for- 
eign commodity has been taxed on coming in, the 
tax of course must be added to its price, and the 
price of the domestic commodity corresponding 
tends to rise to the same point. It will not alivays 
rise to that point, because domestic competition 
may keep it down somewhat, and the foreigner 
may be willing temporarily to sacrifice a part of 
his profits for the sake of keeping the market ; 
but the tendency, the theory, the promise, and the 
practical working, of a protective tariff is just to 
do that. High duties, therefore, have always 
been the cue of Protection. At this very moment, 
the American people are paying on woollen cloths 
imported an average of 59 per cent ad valorem^ on 
other woollen fabrics 72 per cent, on carpets 55 
per cent, and on bunting 95 per cent. On fine 
wools imported, the average tariff-tax is not less 
than 100 per cent; and foreign-built ships are ab- 
solutely prohibited from carrying the American 
colors, or having an American registry. All this 
is in the interest of protection. From 1816 to 
1876, there has been no competition whatever 
with American ship-building, because protection 
has chosen to exclude foreign ships altogether ; 
and it is an interesting commentary on the princi- 
ple of restriction, that ocean ship-building has 
practically ceased in the United States under the 
perfection of protection. We can no longer build 
ships on account of protection, and are forbidden 



148 POLITICAL ECONOMY. 

by protection to buy them, and the American flag 
has mostly disappeared from the ocean. 

I refer to these instances here in order to show 
the fondness of protection for high duties, and 
even for regulations in the nature of prohibition. 
The duties on coarse woollen blankets have been 
so high for several years as practically to preclude 
their importation. This is consistent with the 
idea of protection, but it is not consistent with the 
idea of revenue, nor is it consistent with any lib- 
eral ideas on the subject of exchanges in general. 
Let us notice two or three effects of these high 
duties : — (1). The effect on revenue to lessen it. 
The best illustration of this principle was exliib- 
ited in the United States internal revenue tax on 
distilled spirits : 

1868. Direct tax of $2 per gallon on distilled ' 

spirits ; aggregate revenues . . S18,665,000 

1870. Direct tax of 50 cents per gallon ; ag- 
gregate revenues .... $55,606,000 

1874. Direct tax of 70 cents per gallon ; ag- 
gregate revenues .... |4:9, 444,000 

If the purpose be to. get revenue from foreign 
goods, the goods must be allowed to come in ; but 
if the purpose be to get protection so-called, it is 
better that the goods be kept out by the tax. 
Protection has been almost perfect in coarse wool- 
len blankets, and the revenue has been virtually 
nothing. Protection has been perfect in ships for 
60 years, and not a penny of revenue from them of 



COMMERCE. 149 

course. Complete protection annihilates revenue ; 
protection nearly complete almost annihilates reve- 
nue ; is it not fair to conclude, that high duties 
are hostile to revenue ? It is not denied that high 
duties may bring in considerable revenue, and at 
the same time afford considerable protection; but 
it is denied, that they can do this without making 
the people pay a great deal more than the treasury 
gets, which is surely not a good scheme for reve- 
nue. Low rates of duty are best for revenue, and 
high rates are best for protection, and, therefore, 
revenue and protection are incompatible with each 
other, and all attempts to combine them will be at 
the expense of one or the other. 

(2). The effect on exchanges to discourage 
them. Tariff-taxes, like all others, come out of 
the gains of exchanges, and if these taxes be 
heavy, the motives to trade are lessened on both 
sides; the foreigner realizes less on what he sends 
over, and the native realizes less on what he sends 
back, in consequence of these protective taxes ; if 
the tax shuts out, as it sometimes does, the foreign 
product, the foreigner loses that market entirely, 
and, what is usually lost sight of, the native loses, 
so far forth, his own market entirely ; for, we 
cannot be too often reminded that trade is a 
mutual thing, if we will not buy we cannot sell of 
course, if a tariff keeps out foreign goods it 
thereby keeps in domestic goods that want to go 
out for a market, and the wound inflicted by pro- 
tective taxes is thus a double wound. In order to 



150 POLITICAL ECONOMY. 

enable certain protected interests to get an artifi- 
cial price for their products, certain foreigners 
lose their best market ; and what is more, certain 
citizens lose their best market against these foreign 
goods shut out ; and what is more still, all native 
consumers of that class of goods have to pay much 
more than the goods are worth in a free market, 
a part of the extra price indeed going to the gov- 
ernment in the form of taxes, but probably a 
larger part going to favored individuals in the 
form of unearned bounties. Is not one industri- 
ous citizen as deserving as another? And what 
right has government to take away his market 
from one citizen, who only asks to be let alone to 
make profitable exchanges, in order to make an 
artificial market for another citizen, who clamors 
for government help to exalt himself and thereby 
depress his fellow-citizens? An excellent au- 
thority ^ has calculated that on the average of 
dutiable goods the price of the corresponding do- 
mestic goods is enhanced to the extent of at least 
two-thirds of the duty. Thus, the foreigner is 
harmed by protective taxes, (which is poor policy 
in the end,) the citizen ready to exchange with 
him is harmed also, (which is worse policy,) and 
there has been besides a disturbance of prices by 
which some citizens get more than they should 
and other citizens are compelled to jpa^ more 
than they should, (which is the worst possible 
policy.) It is not strange that Exchange depre- 

1 Hon. Robert J. Walker, in 1847. 



COMMERCE. 151 

cates such an unjust, unnatural, and disturbing 
scheme. 

(3). The effect on morals to loosen them. When 
citizens see that their government is a respecter of 
persons, that rich and otherwise influential men 
can get laws passed for their individual behoof, 
and that the cry of thousands weighs little against 
the unjust claim of one, popular regard for gov- 
ernment declines of course, respect for laws de- 
clines of course, the smuggler never yet failed 
to accompany high protective duties and never 
will, the selfish informer never fails to follow 
the smuggler, the legislator loses sight of the 
general good in the desire to please a few power- 
ful constituents, bribes direct or indirect have 
had much to do with our protective tariffs, the 
public conscience is demoralized by the spectacle 
of interest and influence ruling in high places, 
large fortunes acquired through favoritism en- 
throned in law provoke envy and ill-will, the poor 
are angered at and ready to despoil the rich, the 
rich in turn contemn the unorganized though 
plundered poor, and society gets secretlj'- disorgan- 
ized and by the ears in consequence of a departure 
from the path of impartial justice. With one or 
two partial exceptions, a protective tariff has never 
been enacted in this country but in the teeth of 
an unyielding and bitter opposition; the instincts 
of the masses have been naturally enough against 
all such legislation ; it was a piece of such legisla- 
tion in 1828, that roused the ire of South Carolina, 



152 POLITICAL ECONOMY. 

and led, tlirough the action of Mr. Calhoun and 
others, to the doctrine of nullification, and became a 
mainspring to the series of misunderstandings and 
jealousies, that culminated in the late civil war ; 
in short, protective tariffs bred mischiefs and war 
in Europe for 150 years, and have given birth in 
this country to more of demoralization and disin- 
tegration than any other one thing except slavery. 
If, then, high duties lessen revenue, wound ex- 
changes, and loosen morals, is it not time for an 
intelligent people to abandon them ? 

Again, in the second place, in accordance with 
the aim of the system, protection chooses for the 
incidence of its taxes those foreign goods which 
would otherwise come most into competition with 
its favored domestic goods, and thus contradicts 
the most important principle of a revenue tariff. 
Tea and coffee, for example, are wholly imported 
from abroad, and tariff-taxes upon them, conse- 
quently, will raise the price of nothing else. They 
are among the best things to tax, because they are 
in universal consumption, and because the govern- 
ment will get all the people are made to pay 
under the tax. But protectionists as such do not 
like such taxes. They do not serve their ends. 
In 1872, under a deceptive cry of a " Free break- 
fast table," the tea and coffee taxes, easily realiz- 
ing many millions of dollars to the treasury, were 
repealed under the lead of a protectionist con- 
gressman, for the sake of afterwards holding on to 
the protective taxes by the plea that any further 



COMMERCE. 153 

reduction of revenue would be dangerous. The 
eye of the protectionist as such is never on his 
country's treasury, but always on the extra price 
of some domestic articles. Consumers of these 
articles bear the whole burdens of the extra price 
caused by the tariff-tax to both the imported and 
the home-made. 

It is impossible to tell exactly how much of 
their forced contributions goes to the treasury, 
and how much to the protected individuals. Hon. 
H. C. Burchard of Illinois, a congressman unusu- 
ally well-informed and candid, has recently cal- 
culated,^ that of the contribution of each family 
in the United States on the average, under the 
iron, steel, cotton, and woollen duties as they exist 
at present, |5 goes to the treasury, and $9 to 
manufacturers' dividends. I see no reason to 
question the substantial exactness of this. I 
know, that in many single articles, as in salt for- 
merly, and in blankets now, the proportion is much 
worse than this. Indeed, the best protective duty 
is that, which pays least into the treasury and 
most into the pockets of individuals. And the 
worst about it is, that the contribution is usually 
drawn from the pockets of those who are least 
able to pay it, and passes over into the pockets of 
those who have no claim to it at all and are best 
able to do without it. 

It will surprise some of my readers to learn that 
the average duty on woollen cloths is almost pre- 

1 Speech of May 25, 1876. 



154 POLITICAL ECONOMY. 

cisely equal to the duty on silks, namely, 60 per 
cent, and that the coarser and cheaper the cloth 
the heavier is the rate of duty, because there is a 
duty per pound combined with the duty per value, 
and the coarser the cloth the higher the duty. 
The fundamental injustice of a protective tariff is 
enhanced by its throwing its special burdens just 
where they ought not to fall, namely, on the 
poorer classes. The duty on cheap bunting is 
more than 35 per cent more than on silk; and the 
poorer patriot, who wants to hoist the colors of 
his country on the Fourth of July, must pay over 
95 per cent on his material, while his rich neigh- 
bor, who can afford a silk flag, pays 60 per cent on 
his material. 

Almost precisely one-half of the people of the 
United States get their living from agriculture, 
but, from the nature of the case, these cannot be 
benefited by protective duties, while the burdens 
of a protective tariff fall heavily on them both 
directly and indirectly; directly, because many 
of the things they buy are thereby raised in price, 
and indirectly also, because the things they sell 
are thereby depressed in price. This last will be 
very evident, when we reflect, that the foreign 
market for American products is curtailed in just 
the proportion in which the American market for 
foreign products is curtailed by a restrictive tariff. 
If foreign products are kept out of this country 
by obstructive legislation, then we may be per- 
fectly sure that our own products are for that 



COMMERCE. 155 

reason kept out from other countries, or reduced 
in value there. Two nations are nothing more 
than two individuals expanded and multiplied, and 
the same principles which apply to individuals in 
trade apply to nations also ; so that, if a nation 
refuses to take what would be naturally brought, 
it virtually compels, so far forth, other nations to 
refuse what would be naturally carried. So, since 
our products exported are largely agricultural 
products, cotton, grain, pork, bacon, lard, and so 
on, and the demand for these, and, therefore, the 
value of them, are assuredly lessened by our re- 
fusal to take products freely in pay for them, the 
losses of a protective tariff fall especially upon 
the farmers. By the census of 1870, only 3 per 
cent of all the persons engaged in industrial pur- 
suits in this country were employed in the cotton, 
iron, steel, woollen, and worsted industries, which 
are all highly protected industries. It is the 
many who pay, it is the few who profit, under pro- 
tective tariff-taxes. 

Then again, in the third place, a protective tariff 
contradicts another principle of a revenue tariff, 
in that its tendency is to tax many things instead 
of few, and make the taxes themselves complicated 
instead of simple. Undoubtedly, the few persons 
who get themselves protected first, would like it 
all the better if nobody else would ask to get pro- 
tected. But their very success tempts others. 
When the Legislature begins to grant favors of 
this sort, where shall it stop ? It had better never 



156 POLITICAL ECONOMY. 

begin ! It will stop only when combinations of 
sufficient influence and power to impel it forward 
can no longer be organized. The natural tendency 
of protection is to try to protect many things, 
because others are sure to clamor, and because it 
will pretty soon require log-rolling and combina- 
tion to maintain what has already been secured. 

The woollen manufacturers of this country, who 
had long been protected, found in 1867, that they 
must help the wool-growers, who had not yet 
been protected^ to get a heavy duty upon foreign 
wools, — the very thing the manufacturers did not 
want, — or else the wool-growers would turn 
against and help overthrow the duties on foreign 
woollens. The result of the compromise was the 
Wool and Woollens' tariff of 1867, of which the 
most favorable thing that can be said is, that it is 
difficult to say whether the wool-growers or the 
wool-manufacturers have been the most harmed by 
it. The manufacturers were now obliged to pay 
over 100 per cent duty on fine wool, if they used 
the foreign, as many of them did, and were 
thereby placed at an immense disadvantage as 
compared with English and German manufacturers, 
who obtained their wools without any duty at all, 
and were consequently able to undersell our own 
manufacturers of fine cloths in our own market, 
even after paying the duty on cloths ! This 
result re-acted upon the wool-growers, who found 
that hampering the manufacturers with high 
duties di4 not conduce to their own prosperity. 



COMMEKCE. 157 

If there had been the same demand for wool as 
before, and they the only source of supply, they 
•would have reaped a rich harvest ; but there was 
not the same demand as before, because many 
branches of the manufacture require that different 
kinds of wools be mixed, and the makers having 
no longer a free market to pick from were cur- 
tailed in the manufacture, and the demand for 
even domestic wool fell off, prices declined, millions 
of fine-wool sheep in Ohio and elsewhere were 
slaughtered for their pelts and carcasses, and the 
last decade has been more discouraging both for 
the growers and the manufacturers than any other 
decade of our history. Ohio fine-fleece wool can 
be bought to-day (August, 1876) for from 30 to 35 
cents per pound, — a very low price; and many of 
the most intelligent manufacturers, formerly pro- 
tectionists, are now fully convinced that free 
materials are of much more consequence to them 
than any rate of duty on foreign cloth. 

This instance of combination illustrates the 
tendency of protection to many and complicated 
duties. When England began to abandon pro- 
tection in 1842, the number of her tariff-taxes 
was 1150 ; and, on an actual count in 1868, the 
number of distinct rates assessed on different 
articles in the United States tariff was 2317 ; since 
protection was wholly abandoned in the former 
country, its tariff can be easily written on the 
palm of a man's hand ; and even in the latter 
country, in which protection is more or less domi- 



158 POLITICAL ECONOMY. 

nant still, the number and grades of dutied articles 
are mucli less than they were ten years ago. For 
the year ending March 31, 1876, the entire customs' 
revenue of Great Britain was derived, 38| per cent 
from tobacco, 30| per cent from spirits, 18i per 
cent from tea, 8| per cent from wine, and only 3i 
per cent from a few other miscellaneous articles. 
British customs' duties at present put into com- 
plete practice with the best results the three 
principles of a revenue tariff already enunciated. 

It is also the usage of protection to combine 
specific and ad valorem duties upon the same 
article, that is, a certain duty proportioned to the 
quantity, and in addition to that a certain duty 
proportioned to the value. For example, the duty 
on one grade of wool was at one time 10 cents per 
pound and also 11 per cent ad valorem. Under 
these rates, if the value of the unwashed wool at 
the port of exportation were (as it was) about 10 
cents a pound, then the combined duty would be 
about 111 per cent. One object in thus combining 
both kinds of duty upon single articles is to con- 
ceal from the people as much as possible the actual 
rate of duty, and this is at the same time the great 
objection to the combination. No government 
can afford to trifle with its people in the matter of 
taxes. If any thing ought to be open, above-board, 
clear, and thoroughly known beforehand, it is the 
amount of contribution demanded by a government 
from its citizens ; but under these combined duties 
it is impossible for any importer, still less for the 



COMMERCE. 159 

people, to know what will be demanded, because 
the ad valorem duty will depend on the price of 
the article at the place of exportation, which can 
never be exactly foreseen. The importer, or his 
agent, must take oath both to the quantity, (which 
is easy,) and also to the exact market price at the 
place and time of exportation, (which is sometimes 
difficult or impossible.) Phelps, Dodge & Co., an 
honorable firm in New York, were mulcted in 
$271,000, one-half of which went to an informer, 
because a few invoices, through no fault of the 
firm, appeared to have been undervalued. The 
firm, although they paid the money, asserted their 
innocence, and did not suffer one iota in public 
opinion ; but the law suffered in public opinion, 
and some minor features of it were afterwards 
repealed, and it is to be one of the triumphs of 
the immediate future within intelligent nations, 
that there will be no combination of two kinds of 
duty on the same article, and also that specific 
duties will mostly or wholly take the place of 
duties per value. 

An important report on tariff reform has just 
been made (1876) to the Superior Council of 
Commerce in France, in which the gathered 
opinion of the Chambers of Commerce, the Cham- 
bers of Agriculture, of economists, functionaries, 
merchants, and manufacturers, throughout France, 
pronounces with great unanimity not only in favor 
of the renewal of the commercial treaties with 
other nations, that is, in favor of reciprocity in 



160 POLITICAL ECONOMY. 

trade, but also in favor of converting the ad 
valorem into specific duties. " It is easy," this 
report points out, " to check fraudulent declara- 
tions of weight and measure, but it is extremely 
difficult when the value of a commodity is in 
question. Fair in appearance, these ad valorem 
duties are really as unequal as any others, and 
their collection gives rise to all sorts of difficulties 
between importers and the customs' officials, to 
fraud, and to vexation." The good results to 
France of the adoption of the principle of com- 
mercial treaties in 1860 are seen in the fact that 
in fourteen years the imports and exports of that 
country increased from 9,689,360,000 francs to 
13,810,000,000 francs, in spite of war, revolutions, 
and dismemberment. The tariffs of Great Britain 
and Germany are already free, with trifling excep- 
tions, from all ad valorem duties. 

Free Trade is the opposite of Protection^ and not 
of customs'' duties properly levied for revenue. The 
phrase is not indeed well chosen, though it has 
been long consecrated by usage, on account of 
the possible ambiguity of the words. The phrase 
may mean the abolition of all tariffs, — the allowed 
introduction of all goods into any country without 
any tax at all, — but it is not in this sense that 
the words have become famous ; it was not for 
this that Cobden and Bright and their compeers 
agitated England from centre to circumference, 
nor has it been in this sense that discussion and 
action on free trade have gone forward in this 



COMMERCE. 161 

country. The animated controversies of a century- 
have settled the technical meaning of free trade 
as the opposite to that of protection ; in which 
sense Great Britain, certainly since 1860, has been 
a free trade country. Free traders as such are 
satisfied whenever the tariff of their country con- 
tains no tax except those laid with a single eye 
to simple and equitable taxation. There are 
those, however, and their number is increasing, 
who believe that even revenue tariffs constructed 
on the principles already indicated are not a proper 
instrument of taxation, and who think it more 
feasible to destroy protection by overthrowing 
tariffs altogether than by reducing them to the 
purely revenue form. They would lay the axe at 
the root of the tree. The International Free 
Trade Alliance in New York is founded on this 
principle ; and the late prime-minister of England, 
Mr. Gladstone, expressed himself a few years ago 
in Paris as inclining to the belief that a better 
method of raising a revenue may be devised than 
that by means of any form of a tariff. 

Still, as no one of the leading nations has as yet 
abolished its tariff, and as all are likely to pass 
through the phase of a purely revenue tariff before 
they come to absolute free trade, and as the alter- 
native of tariff or no tariff is rather a question of 
scientific taxation than of practical commerce, — a 
question that we shall discuss under its appropri- 
ate head in the final chapter, — it has seemed 
wiser to me for economists and philanthropists to 



162 POLITICAL ECONOMY. 

assail and overthrow an actual grievance, an nnjust 
discrimination as between classes of citizens, which 
common people can easily understand, than to 
undertake through more complicated processes of 
reasoning to convince them that any tariff is 
necessarily wrong. There ought to be no mis- 
understanding among those whose common end is 
the removal of " protection," whatever difference 
of opinion there may be about the most available 
means to compass that end. Commerce is such an 
unspeakable blessing to the nations, that any 
thing which essentially interferes with it should 
be stricken down by some means or all m.eans ; 
and while I shall use the words " Free Trade " in 
their conventional and controversial sense, my 
readers will find that the arguments already 
adduced and yet to be adduced will lose nothing 
of their significance and work no confusion in 
their minds, even if they should adopt the other 
view of the meaning of these words. I proceed to 
add a few succinct arguments in favor of Free 
Trade, and, in connection with these, the corre- 
sponding objections to Protection. 

1. Free trade would bring the production of the 
world to its maximum. There is in the world a 
certain amount of capital and a certain amount of 
industry. These, if left to their own keen sense 
of interest, without any interference with their 
natural markets, will make the aggregate amount 
of production in the world as great as that amount 
of capital and industry can make it. By no pos- 



COMMEECE. 163 

sibiiity can protection, which is only restriction, 
bring any new motives to bear on producers univer- 
sally. Even liberty brings no new motives to 
bear, but it gives perfect play to all the natural 
motives to production, among which the desire to 
better one's condition by exchanges is almost 
universal, and these motives are sufificient for all 
the interests of production. Even if they were 
not sufficient, as they are, legislation is incompe- 
tent to increase them on the whole ; and protec- 
tion only pretends to increase the stimulus at 
a few points by reducing the stimulus at other 
points. If, then, a free commerce distribute this 
aggregate production over the earth in accord- 
ance with the simple law of supply and demand, 
we shall have not only the greatest production, 
but the most perfect distribution. But if govern- 
ment steps in by a restrictive tariff, withdraws 
capital and industry from their freely chosen posts 
of activity, prohibits exchanges that would other- 
wise be made, and commands commodities to be 
manufactured or grown in localities in which they 
would not naturally be manufactured or grown, 
then, obviously, the aggregate production of the 
world is made less, and its distribution becomes 
less perfect. 

2. Free trade is in accordance with the natural 
indications of Providence. The countries of the 
earth differ widely in point of climate, soil, natural 
productions, established industries, and habits of 
the people ; and with these diversities of relative 



164 POLITICAL ECONOMY. 

advantage spring up the impulses and the gains of 
international traffic ; usually considerable distance, 
and frequently other natural barriers also, have to 
be overcome in order to carry on this trade, and it 
will only be carried on when, notwithstanding all 
this, the trade is still profitable to both parties; 
so that, there is a plain indication of Providence 
that such countries should trade with each other, 
and thus each share in the peculiar good of each, 
and perhaps communicate through a mutual eco- 
nomic benefit some higher good each to each. 
Naturally, under freedom, the nearer nations will 
trade most with each other, for the same reason 
that the volume of each nation's domestic trade is 
larger than the volume of its foreign trade. For 
instance, we might expect that the United States, 
being nearer to and quite as diverse from Mexico 
and the South American States than and as Eng- 
land and France, would have a larger share of the 
trade on this continent ; but the figures for 1874 
show, that while this country sent to those neigh- 
bors but $28,000,000 of exports, France sent to 
them $62,000,000, and England $105,000,000. This 
could never have happened, if the United States 
had obeyed nature, and allowed a mutual free 
trade. Under the reciprocity treaty between the 
United States and the British North American 
provinces, the aggregate of exchanges went up in 
one year from $20,691,000 to $33,494,000, and in 
ten years to $84,000,000, or more than fourfold. 
When reciprocity was repealed in 1866, and the 



COMMERCE. 165 

restrictive duties became operative again, the ex- 
changes fell in one year from $84,000,000 to |57,- 
000,000. Protection, being unnatural, not only 
destroys trade, but also makes the protected coun- 
try weaker and weaker relatively to less protected 
or free-trade countries. In 1860, 71 per cent of 
the total foreign trade of the United States was 
carried in American bottoms ; while after twelve 
years of unprecedented protection for this country, 
the proportion was in 1873 less than 30 per cent. 
Under protection, Belgium's sales of her products 
to other countries increased in ten years (1840- 
1850) only 124,100,000 francs, while in one year 
under comparative free trade (1870-71) they in- 
creased 198,600,000 francs. Protection thwarts 
nature, and nature is perfectly sure to take her 
revenge. Why should not the nations open their 
ports to foreign products, since the result must be 
to open the widest possible market for their own 
products ? 

3. Free trade means abundance and cheapness^ 
while protection means scarcity and dearness. The 
common reason alleged for protective duties is, that 
those goods would otherwise come in so cheap that 
similar goods could not be manufactured in this 
country at a profit. Suppose they could not, what 
then ? Is it the manufacturing that people want, 
or is it the goods ? Which is ultimate in the field 
of exchange, the efforts or the satisfactions ? But 
what we are concerned with now is the admission 
made by protection at the outset that things are 



166 POLITICAL ECONOMY. 

naturally too cheap, and that protective duties are 
an instrument to make them dearer. The admis- 
sion is honest, and the result actually follows. If 
any one is doubtful on this point, let him try a little 
experiment, — let him propose to almost any pro- 
tectionist manufacturer to remove the duty that 
protects him^ and note the nature of his reply. 
This manufacturer may have denied in argument 
a hundred times that protective duties raise the 
prices of goods, but the style of his answer to a 
proposal to take off that particular duty will lay 
bare his deepest thoughts on that subject. A 
hundred to one, he will say in substance, "the 
removal of that duty will enable the foreign manu- 
facturer to undersell me." The duty is in the 
interest of scarcity, and hence of dearness. 

What might of course be anticipated from the 
nature of the case, the price-lists actually show. 
In 1872, the Michigan Central Railroad relaid its 
track in Detroit with steel rails costing ninety- 
seven dollars (gold) per ton, while at the same time 
the Canada Southern Railroad was laying down 
the same kind of rails within a distance of half a 
mile (across the Detroit River) at a cost of seventy 
dollars (gold) per ton. Protection in the United 
States made all the difference. An indefinite tax 
on freight and passengers must make up to the 
road the wretched tax of twenty-seven dollars per 
ton extorted in the interest of the makers of steel 
rails. I have myself seen price-lists, according to 
which the Onondaga Salt Co. of Syracuse, N.Y., 



COMMERCE. 167 

offered to lay down salt, freight paid, at various 
points along the Grand Trunk Railroad in Canada 
at much less per barrel than any American citizen 
could buy the salt for in Syracuse itself ! I am 
happy to be able to add that the salt duties have 
been since then very materially reduced. 

Instances like these might be multiplied indefi- 
nitely, but I will only instance further, in illustra- 
tion- of the opposition of protection to plenty, that 
during this summer (1876) the sugar-planters of 
Louisiana and Texas have tried to defeat the 
Commercial Treaty with the Sandwich Islands, 
because it admits free of duty into our ports all 
unrefined sugars from those islands. The treaty, 
however, has now been fully ratified, and practi- 
cal free trade exists between this country and 
that ; and it is an interesting illustration of the 
way in which knocking off fetters from foreign 
trade immediately revives some domestic trade, 
that, within twenty-four hours of the passage of 
the bill giving final effect to this treaty, the sugar- 
refiners of San Francisco had taken steps to renew 
that decayed industry there. 

4. Free trade fully recognizes the rights of private 
property^ while protection^ hy curtailing^ virtually 
denies them. The right of property, in the last 
analysis of it, is the right to sell something, that 
is to say, the right to buy something. Nothing is 
property that cannot be sold ; and any legislation 
that withdraws any service whatever from its best 
and freely-chosen market destroys a part of the 



168 POLITICAL ECONOMY. 

value of that service. It is a stab at the right of 
property. Protection says; — You shall not buy 
in that market, unless you pay a tax designed to 
prevent your buying in that market ; which is the 
same as to say, You shall not sell your product in 
the market where you can get the most for it ; 
which in turn is nothing in the world but robbing 
you of a part of your private property ostensibly 
for the benefit of another's private property, that 
is, that somebody else may sell a domestic product 
for more than it would otherwise be worth. Thus 
this bad system is tainted on the one side by the 
principle of slavery, and on the other by the prin- 
ciple of socialism. To take away a part of the 
proceeds of one's industry is not indeed so bad as 
to take away the whole, but the principle is the 
same, and it is the principle of slavery. 

What is taken from its citizens by a just gov- 
ernment in legitimate taxation is rightfully taken, 
and, on the part of good citizens, is voluntarily 
and cheerfully rendered; but what is taken by 
"protection" out of the pockets of one class of 
citizens ostensibly for the benefit of another class 
is wrongfully taken, — is in principle robbery on 
the part of the government and slavery on the 
part of those who submit to it without protest. 
On the other side, and what is even worse, pro- 
tection recognizes the principle that government 
may properly take a part of the proceeds of one 
man's industry to reward another man's industrt* 
with, which is the root-principle of socialism, anr 



COMMERCE. 169 

a menace to the rights of private property. If 
government may properly take some of the reward 
of my industry and offer it as extra reward of my 
neighbor's industry, it may properly take some of 
the rewards of the industry of both of us to feed 
and clothe the idle, and it may even distribute at 
will the property of the rich among the poor. 
There is no stopping the applications of the prin- 
ciple till the very extremes of socialism are 
reached, if the principle itself be once admitted. 
If protection be right, then Proudhoil was also 
right; — '■'- Property is theft.'''' So logically is the 
theft of property by protection connected with the 
doctrine that property is theft. Much of the late 
and present dissatisfaction in this country of 
laborers with capital comes by subtle inferences 
from this principle instilled into their minds by 
protectionists. The principle itself is solemnly 
and comprehensively denied. The fruits of every 
man's industry belong to Am, save only that part 
which government may properly take for its own 
support. 

Free trade recognizes this grand principle of 
liberty and property. Within a month, John 
Bright has written these truthful words : — " Pro- 
tection has upon it a taint of the great Avrong of 
slavery. It does not steal the laborer, but it steals 
his labor, it taxes it cruelly, it lessens its result and 
its profit, and turns it into channels less useful to 
the laborer. It says to your cultivator of the soil : 
You must not exchange your quarter of wheat or 



170 POLITIOAIi ECONOMY. 

your barrel of flour with an Englishman for the 
cloth or the hardware he would give you for it ; 
only with an American who will give you so much 
less for it. It was so with us 30 years ago. Our 
weavers could not exchange with your farmers a 
piece of cloth for a barrel of flour, but only with 
an English farmer who offered him half a barrel. 
So the protection system has in it much of the 
evil of slavery, for the labor of the laborer is not 
free ; it is by force of law diminished in value. 
This can only exist in a free country from the 
'ignorance of its people. Happily the fraud is too 
transparent to live long." 

5. Free trade allows a natural and stable cost of 
production, while protection enhances and hazards 
it. We have already seen how numerous and 
delicate are the factors that go to make up the 
cost of production of commodities, and how im- 
portant it is to the producer to be able to calculate 
and rely upon the cost of these factors. If the 
cost of his raw materials, for example, be artifi- 
cially increased by tariff-taxes, it affects at once 
the cost of his product, it affects his market in 
accordance with this general principle that a 
higher price narrows a market and a lower price 
broadens it, it perhaps excludes him altogether 
from a market in which his competitors get their 
materials free of tax, and it introduces an element 
of uncertainty and instability into his business, all 
which is discouraging and hazardous. 

An illustration may be found in the effect on 



COMMERCE. 171 

the boot and shoe business of New England of the 
imposition of duties on hides and leather, and 
especially on lastings or serges. The export trade, 
which was quite considerable, was nearly annihi- 
lated in consequence of these duties ; which, so 
far as the lastings were concerned, were the more 
remarkable, inasmuch as they were not thought 
of when the duties were put on, but, as they came 
under the technical tariff-description, duties had 
to be paid on them to the great disarrangement of 
that branch of the business that used them. A 
tax on a raw material has this peculiarity, that it 
has to be advanced at the outset, and becomes 
with the profits on it a rapidly accumulating ele- 
ment in the ultimate price of the product, inas- 
much as this tax with profits has to be advanced 
over and over again as many times as the product 
changes hands between inception and ultimate 
sale. Tariff-taxes are quite apt to be laid on raw 
materials, and increase thereby the cost of pro- 
duction of all tlie commodities into which these 
materials enter. The present duty of $7.00 per 
ton on pig-iron, though it was reduced in 1872 
from $9.00, is still one of the worst duties in our 
tariff. It was claimed that high duties for a time 
would so stimulate the domestic production that 
the price would be lower than that abroad. 
Twelve years of high duties have given us no 
lower prices at any period than the price twenty- 
five years ago, while the average price is $20.00 
per ton higher on bar-iron under the present tariff 



172 POLITICAL ECONOMY. 

than Tinder the tariff of 1846 for the same number 
of years, and |5.22 per ton higher on pig-iron for 
the corresponding periods. A higher duty on pig- 
iron has never failed to give a higher average price 
to pig-iron in our markets, and a lower duty has 
never failed to be followed by a lower average 
price ; and as pig-iron is raw material to hundreds 
of commodities, and as the rate of duty has been 
at seven differing figures since 1842, it is plain 
that an unstable cost of production has been - the 
consequence, and that even the production of pig- 
iron itself would have been more prosperous with- 
out any duty at all. 

It had been made in this country for more than 
150 years at a profit, before it bore any duty at 
all. It was first dutied in 1816. The steadiness 
of prices under free trade as compared with their 
variability under protection is exceedingly well 
illustrated also ui the prices of breadstuffs in 
Great Britain before and since the abolition of the 
corn-laws. The corn-laws were protection applied 
to British agriculturists in the shape of heavy 
duties levied on the importation of foreign grain ; 
after a good season, grain was reasonably cheap, 
the presumption being that the islands could feed 
their own population in the good years ; but after 
a bad harvest or two, prices rose frightfully, poor 
people starved, food had to be imported and pay 
the duties, and domestic grain rose of course to 
the price of the foreign with duties added. In 
March, 1801, wheat in England was 156 shillings 



COMMERCE. 173 

a quarter, barley 90s., and oats 47s. In August, 
1812, wheat was 155s., while in July, 1814, it was 
only 68s. Such alternations in the price of food 
are fearful, and are the natural result of such pro- 
tective legislation ; while, since the trade in corn 
has been free, the price never varies more than a 
few pence to the bushel, because any deficiency in 
the native harvest is instantly supplied from the 
United States or from the Baltic provinces. Free 
trade gives stability to all costs of production, and 
to all prices, so far as it is possible in the nature 
of things to have stability in values. The com- 
merce of the world is like the tides of the ocean, 
— apparently disturbing, yet really regulating, the 
natural level. 

6. Free trade is the friend of the so-called laboring 
classes, while protection is their enemy. This might 
be inferred with certainty from the nature of the 
case, even if experience had not confirmed it over 
and over again. The value of things produced 
depends in part upon the demand for them, and it 
always must be for the advantage of all those who 
contribute towards the production of any thing, 
that the demand for that product be as strong as 
possible. The wages-class are as much interested 
in having a strong demand for the products they 
help to create as are the capitalist-class, since 
wages quite as much as profits come out of the 
proceeds of the sale of those products. What- 
ever, then, tends to increase the demand for mate- 
rial products in general, must tend to the benefit 



174 POLITICAL ECONOMY. 

of the wages-class. But free trade must increase 
the demand for sucli products, inasmuch as it 
opens up for them a world-market in the place of 
a one-country market. Free trade allows foreign- 
ers to bring in their products freely to exchange 
against native products ; foreign products cannot 
be bought beyond the point at which native prod- 
ucts are sold ; money may come in as a medium in 
both exchanges, as will be explained in the next 
chapter, but that does not alter the fact that at 
bottom it is an exchange of products other than 
money against products other than money ; really 
the only reason why foreigners bring in their 
products is to get the native products in return ; 
therefore, the demand for native products is neces- 
sarily increased by opening the ports freely to 
foreign products ; and, therefore, the wages of 
those who labor on the native products now in en- 
hanced demand must be enhanced also. I invite 
any protectionist, who feels disposed to try his 
hand at it, to break in two this simple chain of 
reasoning. 

I admit, that branches of business artificially 
brought in and sustained by protective duties, in 
competition with countries in which nature rather 
than law favors the production, may collapse in 
the healthful shock of free exchange, because they 
are too sickly for any healtliful shock of any kind. 
Why should they not collapse ? There is no loss, 
on the whole, in their coUajjsing. They are un- 
profitable branches of business by confession, oth- 



COMMERCE. 175 

erwise tliey would not demand to be supported 
out of the resources of the community, that is to 
say, by taxing their neighbors in order to continue 
to exist. The sooner all unprofitable branches of 
business cease to be prosecuted in any country, the 
better for that country and for the world. The 
prospect of ultimate profit under natural condi- 
tions is sufficient inducement to try all needful 
experiments in new directions of production ; and 
the proper test of the propriety of continuing any 
branch of industry beyond the period of experi- 
ment is the natural, God-appointed test of free 
exchanges. All branches of industry are equally 
natural, provided only they are profitable, pro- 
vided only they are adapted to the circumstances 
and conditions under which they start. Agricul- 
ture is no more natural than manufactures, inas- 
much as agriculture itself cannot go forward 
without implements, and without the means of 
clothing and housing the tillers of the soil. The 
point is, that men should follow natural condi- 
tions, and enter upon branches of business just so 
fast as they become profitable, and just so far as 
all the circumstances favor them. Such branches 
of business, and no others have any economic 
right to exist, instead of being harmed by free 
trade, are necessarily made more profitable by it, 
for such is the diversity in natural conditions and 
customs within the countries that each in many 
things has the advantage over all the rest, and the 
opportunity of each to sell to all the rest as well 



176 POLITICAL ECONOMY. 

as at liome the products in wliicli it has an advan- 
tage makes a demand for such products which 
cannot be otherwise than favorable to the laboring 
classes. 

As an illustration of the effect of free trade in 
increasing the demand for native products, I will 
give a few figures from the official Reports of 
Great Britain and France. In Great Britain, 
between 1854 and 1868, exports in general in- 
creased over 72 per cent per capita ; exports of 
cotton, nearly tlireefold ; of woollen manufactures, 
fourfold ; of linen, fourfold ; of iron and steel, 
fivefold ; of leather, sixfold ; of haberdashery, 
nearly sevenfold ; of woollen yarn, eightfold ; and 
of machinery, tenfold. In the same interval, im- 
ports in general increased almost 66 per cent per 
capita. Under the commercial treaty with Eng- 
land, comparing 1860 with 1868, the volume of 
French commerce increased over 37 per cent; 
exports to England, over 155 per cent ; of butter, 
more than twenty-fold ; of eggs, nearly sixfold ; 
of wines, fivefold ; of silks, woollens, and cottons, 
nearly threefold. Whose labor produced these 
enormously increased exports ? Whose wages 
were ever reduced by an enlarged demand for 
the products of labor? The truth is, that free 
trade not only increases the wages of laborers 
through an enlarged demand for their products, 
but also brings comforts and conveniences home to 
thousands, who, under a restrictive policy, would 
have to go without them. French butter and 



COMMEECE. 177 

French eggs are now almost as cheap on the Eng- 
lish side of the Channel as on the other. 

As a matter of fact, too, a matter of daily 
observation and testimony, the condition of the 
laboring classes both in Great Britain and France 
has greatly improved as the restrictive systems of 
those countries have been gradually broken down. 
John Bright says, that the wages of English labor- 
ers in all skilled employments have risen at least 
25 per cent under and in consequence of free trade, 
while hours of labor have been abridged and 
staple articles of food reduced in price. In four 
years from 1870 to 1874, paupers decreased in 
England 23 per cent. Not to speak of Germany 
and other large nations, the little State of Tus- 
cany in Italy affords a most instructive example, 
because exhibited on a small scale apart from 
other influences, of the injurious effects of protec- 
tion, and the marvellous power of recuperation 
under freedom.^ Never better than in Tuscany 
was the wisdom learned out of bitter experience, 
— the wisdom once compressed into the homely 
sentence, " Just let the people look after their 
own business ; they know it better than any min- 
ister of state." 

7. Free trade has the sanction of all ages of the 
worlds while protection is at once a novelty and a 
decrepitude. Antiquity, though perfectly familiar 
with customs' duties, knew nothing whatever of 

1 History of Free Trade in Tuscany, by James M. Stuart. 
London, 1876. 



178 POLITICAL ECONOMY. 

the doctrine of protection. Neither did the 
Middle Ages. England, in the course of the 
seventeenth century, developed the system, which, 
in the course of the nineteenth, she loathingly 
rejected. The new centuries are certainly bring- 
ing in many new and good things ; there is con- 
stant progress in science and in the arts of life ; 
even in the realm of exchange, new things of 
great importance, like the check and the clearing- 
house, have come in and been acknowledged to be 
good; the charge of novelty is not necessarily 
conclusive against any thing — many new things 
are good, and many old things are bad ; but, then, 
on the other hand, trade is very old, all nations 
have engaged in it from the beginning, some grew 
very rich by means of it,^ and all experienced 
the reciprocal benefits of it ; money, as a medium 
of exchange, was invented before Abraham's day, 
and there were in his day certainly, and probably 
long before, as there have been in every generation 
since, merchants as a class; the minds of men 
were employed about trade, they must have per- 
ceived the grounds of its utility, and though they 
did not develop the science of it, though they 
made many mistakes about it, yet it seems strange, 
if there be any truth in the matter of protection, 
since that concerns the fundamentals of trade, 
that no one of the ancients should have had even 
a glimmer of that truth. 

Aristotle threw out a good deal of light in 

1 See the 27th chapter of the Prophet Ezekiel. 



COMMERCE. 179 

various directions upon the subject of Political 
Economy, but it never occurred to that gifted 
thinker that it would be a good thing to try to 
stop by statute a mutually profitable trade 
between nations ! There was plenty of hostility 
between nations in ancient and mediaeval times, 
and often great restrictions on intercourse between 
them, but I find no hint coming down from those 
times of the central point of modern protection, 
namely, that it may be ultimately profitable to 
curtail by legislation a presently profitable inter- 
national trade. Under all the circumstances, it is 
against protection, that it never was thought of 
until the middle of the seventeenth century. It 
is against protection, that it had its origin in the 
bitter rivalry and hostility of England and Hol- 
land. It is against protection, that, having been 
thoroughly tested by Great Britain for almost two 
centuries, it is now acknowledged through every 
organ of public opinion there, that the system was 
alwat/s maintained at a loss. It is against protec- 
tion, that other nations, having copied the system 
from England and tried it long, are only just 
behind England in abandoning it in scorn. 

It is against protection, that its influence is 
waning in every enlightened country in the world. 
It is against protection, that the United States, 
in which it has been dominant for a decade and 
a half, have just made a free-trade treaty with 
the Sandwich Islands, and are likely soon to make 
another with Canada. It is against protection, 



180 POLITICAL ECONOMY. 

that the Mercantile System so-called — the doc- 
trine of the Balance of Trade — in connection with 
which restrictive tariffs had their birth, has long 
ago been discarded as false by all thinkers, states- 
men, and nations. In one word, it is against pro- 
tection, that it came in so late and is going out so 
early. On the other hand, it is altogether in favor 
of free trade, that it has always been in the world 
and always will be, and that it has fought and is 
fighting in a dozen different nations a good fight 
with its great enemy, and has already substantially 
won the battle. 

8. Free trade is in harmony ivith the spirit of 
progress, while protection is directly opposed to it. 
It will be admitted by all, that the past progress 
of the world has been in the direction of freedom. 
The great struggles have been around three points 
as centres ; first, freedom of person ; second, free- 
dom of opinion ; and third, freedom of exchange. 
As the result of the struggle around the first 
point, personal slavery has now mainly disap- 
peared from the earth; as the result of the 
struggle around the second point, the freedom of 
opinion and its expression, and especially of reli- 
gious opinion, has gained great triumphs in all 
lands, although much jet remains to be done 
before its complete triumph is assured ; while, as 
the result of the struggle around the third point, 
one barrier after another has given way, one 
monopoly after another has been conquered, until 
now it is pretty generally agreed that freedom of 



COMMEKCE. 181 

exchange is just as sacred as freedom of person 
and of opinion, and the struggle, which is in 
entire harmony with the others, will certainly 
never cease until the liberty of contract and deliv- 
ery, subject only to conditions of morals and 
health and revenue, shall be international and 
universal. The spirit of free trade is the spirit 
of peace and good-will. It is the spirit of self- 
interest certainly, but then it is an enlightened 
self-interest that sees that another's loss cannot 
permanently be one's own gain. It is the spirit of 
give and take. It is the spirit of live and let live. 
It is a lower and yet beneficent application of the 
apostolic words,^ — " Look not every man on his 
own things, but every man also on the things of 
others." It is in harmony with the tendencies 
and ongoing of things in this world. It has in it 
all the elements of stability and permanency. It 
is itself a sign of progress, and it paves the way to 
progress in other directions. 

I have recently met with a passage in one of 
our daily newspapers,^ which is so just in senti- 
ment and so clear in expression, that I will quote 
it entire : — "It is a matter of notoriety, demon- 
strable from contemporaneous English history and 
social statistics, that the public morals of that 
country have improved along with its prosperity 
ever since the principle of free, unshackled trade 
was adopted. It was the first of the long series 
of reforms that have characterized English legisla- 

1 Phil. ii. 4. 2 Chicago Tribune. 



182 POLITICAL ECONOMY. 

tion during the past quarter of a century. It was 
followed by an improvement in all kinds of taxa- 
tion, until the revenue is raised upon the smallest 
number of articles of luxury and to the relief of 
the largest number of people. It opened the way 
for the growth of the liberal sentiment which has 
encouraged social, political and religious freedom. 
The extension of educational facilities, the dis- 
establishment of the Irish Church, the liberaliza- 
tion of suffrage, the establishment of free schools, 
are all reforms that never would have been realized 
if the power of reform had not first asserted itself 
in the derogation of the injustice of high tariff. 
Incident to these and other measures for the ame- 
lioration of the condition of the English people 
have' been the growth of intelligence and educa- 
tion, the increased power of enlightened public 
opinion, the improvement and purification of the 
civil service and the decrease of crime, until to-day 
the English Government is cited as a model in its 
assurance of individual rights and personal liberty, 
as the English people are noted for the high de- 
gree of prosperity. All this has not only been 
accomplished under freedom of trade, but free 
trade was the starting-point from which these con- 
ditions took their impetus." 

On the other hand, protection cannot bear a 
searching inquiry into the motives of the men 
who practically get the protective duties put on. 
They are thinking only of an artificial price for 
their particular product, and not at all of the 



COMMERCE. 183 

other far-reaching consequences of their action. 
That some of their fellow-citizens are cruelly 
taxed as consumers in consequence of their action, 
that others of their fellow-citizens lose in part or 
in whole the market for their products in conse- 
quence of their action, and that foreigners lose 
also in part or in whole their market in conse- 
quence of their action, weighs but little in the 
mind of the practical protectionist. I have it 
on the very highest authority, — the authority of 
experienced men who have served at different 
times on the Ways and Means Committee at 
"Washington, — that the individuals and delega- 
tions who come before that Committee in behalf 
of new or higher protective duties, come in the 
barest selfishness, without a thought or care of 
anybody's interests but their own. Can a system 
like this, so shortsighted and greedy, so obstruc- 
tive to natural and wholesome tendencies, building 
so little on permanent elements in man and nature, 
claim to be a part of the progress of the world ? 
Can restriction hold its own in a fair comparison 
with freedom ? 

It is not needful, in a book like the present, to 
go further into detail with the arguments for a 
free commerce, or to refute in detail the arguments 
for protection. Enough has been said to indicate 
the profound conviction of the writer, and, I ven- 
ture to hope also, enough to determine the delib- 
erate judgment of the reader, that international 
commerce is good ; that God intended it as a part 



184 POLITICAL ECONOMY. 

of the education and well-being of mankind ; that 
restrictions on it, except in the three cases already 
so often mentioned, are economically and morally 
evil ; that a tariff, if it be had at all, should be 
had as an instrument of simple taxation only ; and 
that a protective tariff is, and from its nature must 
be, a cause of loss to other nations indeed, but of 
greater loss to the nation imposing it. 

The history of the Colonies, which now form 
some of the States of this Union, and the history 
of the Union itself, confirms in a striking manner 
the justness of these general conclusions. That 
history makes ridiculous the plea that artificial 
stimulus is needful in order to_ bring in new indus- 
tries into any country. Most of the great indus- 
tries of this country sprang up, not only without 
any artificial stimulus, but also in spite of the 
hostility and vigilance of the mother-country. 
As early as 1638, the manufacture of linen, cotton, 
and woollen cloths was commenced at Rowley in 
the State of Massachusetts. 

In 1643, the younger Governor Winthrop estab- 
lished iron works at Braintree and Lynn, in the 
same State, which, after some losses, were success- 
fully prosecuted. In 1721, New England alone 
had six furnaces and nineteen forges. There were 
others in Pennsylvania and Virginia. Parliament 
enacted that no more mills should be erected in 
America for slitting or rolling iron, or forges for 
hammering it, or furnaces for making steel. In 
some cases, agents of the crown were authorized 



COMMERCE. 185 

to tear down such establishments as " nuisances." 
Glass works were established very early in Salem, 
Massachusetts. How far all the arts of naviga- 
tion had been carried in the Colonies before the 
Revolution, any one may read in Burke's famous 
speech on Conciliation with America. How far 
the products of the loom, the forge, and the anvil, 
were already being exported, in spite of British 
legislation, to other countries, any one may see in 
Lord North's last proposals and concessions to ward 
off the Revolution. The history of this country 
from the first day to this day is a continuous refu- 
tation of the pleas and arguments for restraining 
its commerce. 



186 POLITICAL ECONOMY. 



CHAPTER IV. 

MONEY. 

Money is always a pleasant topic to discourse 
about. Through the influence of association, the 
very word has come to have an agreeable sound ; 
and the thing itself, especially in the form of gold 
or silver coin, is an object of beauty, as well as 
of great utility. Even a Bank of England note, 
which rarely gets much soiled by usage, inasmuch 
as, once returned to the bank, it is never re-issued, 
and its average life is computed to be not more 
than three days, is not a disagreeable thing to 
look at ; neither are our present national bank- 
bills and greenbacks offensive to the eye, until, by 
much usage, they become dirty and mutilated, 
and even then they are still convenient things to 
have. Money, too, ahnost always has upon it in 
some form the symbol of its nationality, it bears 
the image and superscription of Caesar, and so be- 
comes associated with patriotic love of country. 

Another thing that gives interest to the subject 
of money, is the fact that it is a human invention, 
and therefore completely intelligible, inasmuch as 



MONEY. 187 

men can always understand what men have de- 
vised. Undoubtedly, the conditions of exchange 
were so pre-ordained as to make money of some 
sort an almost indispensable instrument of society, 
and to make the invention of it a comparatively 
easy task to the human mind, still, we can go back 
in histor)'- to a time when there seems to have 
been no money, and we can trace in tolerably clear 
outline the gradual introduction of various forms 
of money, until Pheidon, King of Argos, first 
coined silver money in Greece in the first half of 
the eighth century before Christ. The Homeric 
poems, probably about a century older than the 
time of Pheidon, make no mention of money, 
though gold is several times alluded to as an arti- 
cle of wealth, and most of the words expressive 
of wealth refer to cattle or horses or products 
of agriculture, various things being mentioned in 
these poems as worth so many oxen. It is plain 
also from the Latin word for money, pecunia, 
which is derived from peeus, a sheep, that cattle 
were the earliest form of money among the Ro- 
mans, as they still are money among some of the 
tribes of Africa. 

The word money is derived from an epithet of 
uncertain meaning attached to the name of the 
Goddess Juno. On the Capitoline Hill in Rome 
was a temple dedicated to Juno Moneta, and the 
Roman mint was a building annexed to this tem- 
ple, and the epithet of the goddess passed over 
first to the mint and then to that which was 



188 POLITICAL ECONOMY. 

coined there. The Romans first coined silver in 
the year 269 B.C., but they had coined money of 
bronze (copper and tin) for some centuries previ- 
ously, and Pliny states that this bronze money 
was stamped at first with the image of cattle 
(pecits), whence its name Qpecunia). This is an 
interesting statement, because it implies that the 
first pieces of coined money were regarded as the 
equivalents in value of the cattle whose image 
they bore. It implies that cattle were an early, if 
not the very earliest standard of value ; and that 
when the convenience of the metals as such a 
standard first suggested itself, these were coined 
or cut into such size as made the pieces represen- 
tative of the value of the animal whose outline 
was stamped on them. Gradually was lost in the 
minds of men this connection between the two, 
and the bits of metal came to stand independently 
in their own right as valuable things. 

The earliest recorded mention of the precious 
metals, in Gen. xiii. 2, confirms the precedence of 
cattle as a standard of value, and, in the order 
of the words, perhaps foreshadows the connection 
just alluded to, and certainly implies, what is 
proved by other evidence, that silver came earlier 
than gold to be a standard of value ; — " And 
Abram was very rich in cattle, and in silver, and in 
goldr The earliest recorded mention of a pur- 
chase and sale, found in Gen. xxiii., and belonging 
to a time about 2000 years before Christ, throws 
much clear light upon the conditions of trade in 



MONEY. 189 

that early time, and gives us a glimpse of the kind 
of money then in use. The wife of Abraham 
being dead, he bought from Ephron a field in 
Machpelah as a burying-place for her, and he 
" weighed to Ephron the silver he had named in 
the audience of the sons of Heth, four hundred 
shekels of silver, current money with the mer- 
chant." The pieces of silver were weighed, not 
counted, just as the Bank of England still weighs, 
not counts, coins received. Yet the money was 
" current," that is, cut for purposes of circulation 
to certain ostensible weights, as the shekel, (origi- 
nally a weight), jet requiring a balance to make 
the exact value sure. The monuments of Egypt 
and of Assyria give us pictures of such a weighing, 
used in those countries from a very remote time. 
The Scripture passage shows that there were in 
Abraham's time " merchants " as a class. It 
shows also, that, in the absence of written docu- 
ments, living witnesses authenticated the facts of 
trade. It was " in the audience of the sons of 
Heth, before all that went in at the gate of his 
city, that the field and the cave were made sure 
unto Abraham for a possession." 

Now, in the light of what has already been said, 
it is easy to see what is the essential nature of 
money. It is a go-betiveen. It is a standard of 
comparison in values. All values of every kind 
rest back for their basis on a Comparison; and 
some things are compared directly with each other, 
and exchanged directly against each other without 



190 POLITICAL ECONOMY. 

any reference to any third thing as a standard of 
comparison ; while most things are first compared 
with the standard, even when they are not actually 
exchanged against the standard, and their relations 
in value to other things are ascertained by means 
of the standard. Money itself is a valuable thing, 
else it could not serve as a standard in values. 
Something that has length (an inch) must be used 
as a standard of length, something that has capa- 
city (a pint) must be used as a standard of capa- 
city, and something that has value (a dollar) must 
be used as a standard of value. The value of 
money comes and goes under precisely the same 
conditions as the value of any thing else, it stands 
in its own right just as any other valuable thing 
does, and the only peculiarity of it is, that its 
value is made a means, — a standard, — of 
comparing together the values of all other 
things. 

Let me simply illustrate these points; — If I 
have a penknife for which I have no immediate 
use, and my friend has a patent inkstand for 
which he has no immediate use, and each of us 
happens to desire this possession of the other, we 
may exchange penknife for inkstand without ever 
thinking of any third thing, as a dollar, with 
which to compare the two things. This is a case 
of value. The penknife is worth the inkstand, 
and the inkstand is worth the penknife. This is 
a case of what is called Barter, or direct ex- 
change. Money plays no part whatever in such 



MONEY. 191 

an exchange. But such exchanges are relatively 
uncommon. Almost all things are sold either 
actually for money, which thus becomes an in- 
termediate and equivalent merchandise, or at a 
value estimated in money, which thus furnishes 
the aid of its denominations for a transaction 
which may be settled up otherwise than by the 
use of money itself. 

Thus ; — The stationer, thinking it likely that 
I, or somebody else, will want an inkstand, and 
my friend, or somebody else, will want a penknife, 
buys these commodities in the market in order to 
sell them again at a profit; I pay him a silver 
dollar for the stand, and my friend pays him a 
silver dollar for the knife ; our wants are both 
supplied, as before, but this time through the 
agency of money, which acts in this case as a 
convenient commodity, an equivalent merchan- 
dise, a thing with which the other thing is com- 
pared and is pronounced equivalent; but if my 
friend and I have reciprocal dealings with the 
stationer, he furnishing us things from time to 
time, and we furnishing him things other than 
money from time to time, there is no need that 
money pass from us to him in pay for the ink- 
stand and penknife, at least at present, but there 
is need that we know what value on account of 
these two things will be reckoned against us in 
the final settlement, and this can only be through 
the use, not of money itself, but of the denominor 
tions of money. He charges us each one dollar^ 



192 POLITICAL ECONOMY. 

and we are bound to furnish him at some time 
either with an actual dollar in return or with a 
dollar's worth of something. 

This example illustrates the important fact, that 
money as a denomination is used in thousands of 
cases, as in estimates, bargainings, cases of mutual 
indebtedness in the clearing-house and elsewhere, 
in which money as a commodity is not used at all, 
or if at all, only to pay off small balances. Whether 
the thing-dollar or only the denomination-dollar 
be used, the nature of money as involving a com- 
parison, as involving a standard, is equally illus- 
trated. Strictly speaking, money as such has but 
one function, namely, to serve as a standard of 
comparison throughout the whole realm of values, to 
serve as a means of reducing to one common measure 
all values whatsoever. Much confusion has arisen, 
and still exists, even among eminent writers, from 
not distinguishing clearly between what belongs 
to money as a certain valuable thing having quali- 
ties in common with all other valuable things, and 
what belongs to it as money. All money has value 
of course, else it could have no function in the realm 
of values, but besides value, which it has in com- 
mon with ten thousand things, it has something 
additional and peculiar, something imparted to it 
by the opinion, custom, or law, of the community, 
and that something is just this, that it shall serve 
as a means of commensurating all other values 
with each other. It is commonly said, that money 
is both a medium of exchange and a measure of 



MONEY. 193 

value ; and Professor Jevons ^ has even tried to 
make out that there are two functions more, 
namely, a standard of value, and a store of value, 
I have myself elsewhere ^ endeavored to distinguish 
very carefully between money as a medium and 
money as a measure, but I am now after much re- 
flection inclined to maintain, that money as such 
has but one characteristic difference from other 
forms of value, namely, this standard-qnality, this 
publicly recognized function as a measure, to which 
all other values are constantly referred. 

When money passes from hand to hand as a 
medium in exchanges, that is to say, when men 
sell services of all kinds for actual money received, 
what is it that makes the money so universally 
acceptable? Of course, the main reason is its 
value, that is to say, it can be used at once or at 
will to purchase other things with. The service 
has just bought the money, and now the money 
will buy any other service offered for sale. But 
other things besides money, as wheat, cloth, butter, 
have value as constantly in time, though not per- 
haps as steadily in amount, as money has ; but 
these things, whatever they are, are not so accept- 
able in exchanges as money is ; why not ? Simply 
because money through the action of society in 
law or custom has an additional attribute, which 
these other forms of value lack, namely, the attri- 
bute of being a standard. This additional attribute 

1 Money and the Mechanism of Exchange, p. 13. 

2 Elements of Political Economy, p. 246, et seq. 



194 POLITICAL ECONOMY. 

is not wliat imparts its value to money, since an ounce 
of uncoined gold is worth within a very small 
fraction as much as an ounce of gold money, but 
it makes the money a far more convenient instru- 
ment to purchase with, inasmuch as money, having 
now the attribute of making all other values easily 
commensurable with itself, becomes at once some- 
thing which everybody is willing to receive, be- 
cause everybody knows in general what its power 
will be to purchase all other things. In other 
words, money becomes a medium of exchange just 
because it has become a measure of values ; and 
there are not in reality two functions of money, 
still less four, but only one. 

When the United States at one of its mints 
coins a piece of gold weighing 25| grains troy, of 
which 23.22 grains are pure gold, and calls that 
coin a " dollar," and makes the " dollar " the unit 
of accounts, and makes the coin a legal tender for 
debts to the amount of a " dollar," it transforms 
a bit of bullion into a piece of money. "What has 
really been done ? The mint has not imparted its 
value to the gold piece, because the bullion was 
worth substantially as much as the coin now is, 
and the United States does the coining absolutely 
for nothing, but it has imparted a most important 
attribute to the gold piece, by virtue of which its 
value becomes a legal measure of the value of 
every salable thing in the country, and by virtue 
of which, heing such a measure^ it becomes accept- 
able to the extent of its value in every pecuniary 



MONEY. 195 

transaction in the land. This view seems to me 
to simplify the subject of Money very much, and 
I am confident that it will be found to be scien- 
tifically correct, and we shall have many means of 
testing its accuracy as we proceed. 

I cannot at all see my way clear to agree with 
Mr. Macleod, who is able however to fortify his 
opinion by the great name of Bastiat, and who is 
liimself an economist of the first rank, when he 
affirms^ that money is a simple representative of 
Debt. " The quantity of money in any country 
represents the amount of Debt which there would 
be if there was no money ; and consequently, 
where there is no debt there can be no money." 
The unfortunate use by some countries of a paper- 
money, which is indeed a form of debt, gives some 
plausibility to the notion that money is a repre- 
sentative of debt ; and perhaps the fact, that 
money is frequently used to pay debts previously 
contracted, and that debts are usually contracted 
in the terms of money, gives some additional 
plausibility to this view ; but as Mr. Macleod him- 
self goes on to say, that " no substance possesses 
so many advantages as a metal for money," and 
that " all civilized nations therefore have agreed 
to adopt a metal as money, and of metals, gold, 
silver and copper have been chiefly used," I do 
not see how he can consistently hold that a gold 
dollar, or a gold sovereign, whose value is in no 
sense due to the process of coining, whose value is 
1 Elements of Banking. London, 1876. 



196 POLITICAL ECONOMY. 

as substantive and independent as any value in 
the world can be, becomes through coinage and 
circulation a representative of debt. Instead of 
saying, as he does, " where there is no debt there 
can be no money," I should confidently say, where 
all transactions are settled in solid money there 
can be no debt. 

Gold and silver money are an independent and 
equivalent merchandise, made indeed by coinage a 
measure of the value of all other merchandise, but 
not losing through coinage their own quality as 
merchandise, only taking on by means of coinage 
an additional quality fitting them to be a standard 
of value ; paper-money is strictly nothing but a 
promise to pay the merchandise (gold or silver) 
which the proper authority has coined as the 
standard money of the land, and which alone 
furnishes the denominations in which even the 
paper-money and all other credit-obligations are 
reckoned; so that money is always either an 
equivalent merchandise, or a promise to pay it. 
Paper-money certainly represents a debt, but gold 
and silver money represent nothing but them- 
selves, only the national stamp on them makes 
them and their denominations a convenient meas- 
ure of all other values. 

What is a dollar ? Under United States law at 
present a dollar is a metal compound, consisting of 
nine parts pure gold and one part a hardening alloy, 
and weighing 25^ grains troy. There is no mys- 
tery about it. That is a dollar. It is a substantive 



MONEY, 197 

thing, visible, tangible, ponderable, and valuable. 
But when the law makes just that thing a dollar^ 
it establishes the value of that as the unit of all 
other values, and of course at the same time con- 
stitutes the denomination-dollar as a kind of lan- 
guage through which values may express them- 
selves in estimates, bargainings, and so on. It is 
competent for Congress to say that the dollar here- 
after shall consist of 20 grains of gold nine-tenths 
fine ; but the effect of that would be to reduce the 
unit of value 23 per cent, or in other words, to 
raise the value of all things measured by the new 
dollar 23 per cent. Congress is competent even to 
make a dollar out of silver, but the value of that 
silver, over which Congress has no direct control, 
would then be a new unit, with which all other 
values would be compared and measured. Con- 
gress is not practically competent to make a dollar 
out of any thing else than gold and silver, because 
the public opinion of the world has pronounced 
unequivocally in favor of these metals for this 
purpose, and a dollar made of anything else would 
not be acceptable as a standard either in domestic 
or foreign commerce ; and it is exceedingly unwise 
for any government, unless in view of imperative 
public reasons, to change the standard to which 
the people have been accustomed, for the same 
reason that it is unwise, except as before, to 
change the standard of weights and measures. 
After each change in one or the other, every thing 
has to be adjusted to a new unit. 



198 POLITICAL ECONOMY. 

It is indeed very desirable tliat tliere should be 
an international and universal system of coinage, 
that is to say, that the money of one country, 
having been so minted as to bear simple ratios to 
the coins of other commercial countries, may cir- 
culate freely throughout the world. The French 
franc-system has already gained great prevalence 
in Europe and parts of Asia, and if our gold 
dollar were lowered 3.5 per cent, and the English 
sovereign also lowered 0.88 per cent, very simple 
relations would obtain between francs, dollars and 
sovereigns ; — 25 francs would just equal 5 dollars, 
and each would just equal 1 sovereign; or, 1 dollar 
would equal 5 francs, and each equal 4 shillings. 
The unification of French, English, and American 
money in this or any other way would doubtless 
be followed by the action of all other commercial 
countries bringing their money into harmony with 
these unified coins; and to bring about such a 
grand result as this would justify any country in 
changing its unit of value. This is done simply 
by changing the weight of pure gold or silver in 
the unit coin. As the value of coined money 
depends on the weight of pure metal in it, the 
relations in value of different coins depend on 
their respective weights ; for example, there are 
113.001 grains troy of pure gold in an English sov- 
ereign, and 23.22 grains in an American dollar, 
accordingly, one sovereign is worth $4.8665, and 
by recent law of Congress the two are made 
equivalent. Thus we see what a dollar is, what a 



MONEY. 199 

sovereign is, what is any other unit of value : 
it is a certain weight of a precious metal authen- 
ticated by the government through the process 
of coinage as of such and such weight and fine- 
ness. 

What is a dollar-bill? It is nothing in the 
world but a promise to pay the dollar just de- 
scribed. It may be issued by a bank, or it may 
be issued by a government, it is a promise still — 
nothing but a promise. Here comes in Mr. Mac- 
leod's idea that money represents a debt. Paper 
money does represent a debt. A dollar-bill is a 
sign that the issuer owes the bearer one dollar. 
If the issuer redeem his bill with a gold dollar, as 
he is bound in terms and in honor to do, the debt 
is paid, the transaction is completed ; while the 
holder of the gold dollar holds no debt against 
anybody, nobody is obliged to take his dollar, 
the government that coined it has nothing to do 
with it any more, it is a piece of ultimate prop- 
erty, it is the unit of value, not a sign but the 
thing signified, not a debt but a quittance. A 
dollar-bill is a piece of credit-paper that goes by 
faith: a coin-dollar is a piece of metal, authen- 
ticated indeed as to weight and fineness by the 
stamp of government, and thus made a convenient 
standard of value, but otherwise requiring no faith 
in anybody, — it goes by sight. Paper-money is 
promise, coin-money is payment. This distinction 
is of great importance, and, if clearly seen and 
firmly held to, will guide my readers safely 



200 POLITICAL ECONOMY. 

through all the mazes of what is called the " cur- 
rency discussion." 

Bank-bills will be thoroughly discussed in the 
coming chapter on Credit, and I will here only 
call attention to the incongruity of ever making a 
mere promise to pay a legal tender for debts. 
Parliament indeed makes the bills of the Bank of 
England legal tender for debts within the realm, 
hut only so long as the hank redeems them in coin on 
demandy which condition removes of course the 
chief objection to such legislation ; and Congress 
in 1862 made the Treasury notes, commonly 
called greenbacks, legal tender for all debts 
within the United States except interest on the 
public debt and the taxes levied by the tariff. 
These notes are still legal tender, though their 
value has varied in this interval as compared with 
gold from 35 cents to something over 90 cents to 
the dollar. A promise should always rest on the 
free faith of the receiver in the good faith of the 
issuer ; and, therefore, to compel people to accept 
a promise is a moral and monstrous incongruity. 
To continue to give in this manner a forced cir- 
culation to mere promises to pay which remain 
constantly unfulfilled has at once weakened the 
credit, disarranged the industries, and lowered the 
morals of the people of the United States. 

Common language recognizes alike as money 
these national coins of gold and silver and these 
paper promises to pay them, — both those issued 
by banks and those issued by government for the 



MONEY. 201 

purpose of furnishing a circulating medium ; and 
science, while insisting on the fundamental dis- 
tinction already made, has no motive to restrict 
the current meaning of the word money. Money, 
then, may be defined to be that value which law^ 
or usage equivalent to law^ requires creditors to ac- 
cept in payment of debts. The question What is 
money ? and the question What is the best money ? 
are quite distinct questions, and while we shall 
try to answer both questions fully in their place, 
we will for the present, for the sake of simplicity 
and the clearer understanding of some points, dis- 
miss all thoughts of paper-money, and consider 
that money consists only of gold and silver coins. 
In doing this, we will not forget that a great 
many other things besides gold and silver have 
been used as money at one time or another. We 
have already seen that the sole characteristic of 
money as such is that it serves as a standard value 
with which to compare all other values, and as 
such a standard — value being what it is — it pos- 
sesses of course a kind of generalized purchasing- 
power, which fits it to pass from hand to hand as 
a medium in ordinary exchanges. A good many 
different things have served these purposes in dif- 
ferent ages and countries, and we will notice a 
few of them, more as a matter of curiosity than as 
necessary in order to understand the nature and 
functions of money as such. 

Before Pheidon coined silver in Greece, copper 
skewers were used in that country as money, of 



202 POLITICAL ECONOMY. 

which six were equal to a drachm, which was both 
a coin and a weight, the coin worth about 17 cents 
of our money — nearly the same as a Roman dena- 
rius — and the weight about QQ grains avoirdu- 
pois ; — the word drachm being derived from 
dpdyfia, a handful, and the sixth part of it, called 
an obol from the Greek word meaning a sjnt, was 
also both a coin and a weight, which makes it 
evident that these skewers were used in connec- 
tion with roasting meat, and that one of them was 
both a unit of value and of weight. Cattle have 
been employed as money among pastoral people in 
almost all periods of the world, and are still em- 
ployed for this purpose in Africa. Cowry shells 
are used in the East Indies and also in Africa in 
place of small coins, and have sometimes been 
imported into England from India to be exported 
in trade with the coast of Africa : these count 
in Bengal at about 3200 to a rupee (46 cents). 

The New England Indians used as money belts 
of beads, the white ones made out of the ends of 
periwinkle shells and the black ones from the 
black parts of clam shells, of which 360 made a 
belt or string of wampum, as they called it, the 
black beads being counted worth twice as much 
as the white ones ; and the English colonists 
accepted the wampum in their exchanges with the 
Indians, regarding a string of white as equivalent 
to 5 shillings and a string of black to 10 shillings, 
and afterwards made it a legal tender for small 
sums among themselves, and even counterfeited it. 



MONEY. 203 

The Carthaginians had a kind of leather money, 
which may have originally enclosed bits of the 
precious metals, but which came to circulate as 
bits of leather only ; and several times in Europe, 
in the middle ages and even since, kings have re- 
sorted to the issue of leather money, of which 
there are specimens in the British Museum. 

According to the travellers Polo, China had in 
the 13th century a money made from the middle 
bark of the mulberry-tree, cut into round pieces 
and stamped with the image of the sovereign, 
which money it was death to counterfeit or to re- 
fuse to take in any part of the empire. Cakes of 
tea have passed as money in India, and elsewhere ; 
and it is said, that at the great annual fair at Nov- 
gorod in Russia, the price of tea has first to be 
determined before the prices of other commodities 
can be settled upon, since that is a kind of stand- 
ard of values in that great mart. Bullets once 
passed in Massachusetts at a farthing apiece, and 
were legal tender for debts of less than one shil- 
ling. Salt has been current money in Abyssinia ; 
codfish in Iceland and Newfoundland ; tobacco in 
Virginia ; beaver-skins in New Netherlands ; pieces 
of silk in China ; nails in Scotland, according to 
Adam Smith, which is a forcible reminder of the 
old Greek skewers ; iron was money in Sparta ; 
leaden money was known to the ancients, and is 
still current in the Burman empire ; the earliest 
coins proper were undoubtedly of bronze, a mix- 
ture of copper and tin, and Sicilian, Roman, and 



204 POLITICAL ECONOMY. 

old British, coins of tin alone are known to have 
been struck ; and Herodotus makes the statement, 
that the Lydians of Asia Minor were the first to 
make a coinage of a mixture of gold and silver, 
called electrum, very ancient specimens of which 
are still existing.^ 

Indeed, such is the necessity of some standard 
of value in order that exchanges may reach any 
considerable development, that we shall not be 
surprised to learn that many other things besides 
these mentioned have served in primitive states of 
society as such a standard. Experience, however, 
as civilization has advanced, has already driven the 
nations for the most part to drop these tentative 
and factitious standards in favor of the precious 
metals as the best material for money. Gold and 
silver coins are now acceptable in almost all parts 
of the known world; and in many parts of the 
world nothing else is acceptable as money; so 
that, experience has demonstrated in their almost 
universal adoption the superiority of these metals 
over all other forms of money; and we shall be 
able to give, further on, some excellent reasons 
why gold and silver furnish the best money. 

Assuming now, for the present, that coins of 
these metals are the only money, this is the place 
to see exactly what the uses of money are. These 
uses are two ; and they both spring out of the one 
characteristic of money as the chosen standard 

1 See comments on this passage in Macleod's Economics, vol, 
i. 367. 



MONEY. 205 

with which all current values are compared. Gov- 
ernments usually appoint the standard, that is, 
determine by law the weight and fnieness of that 
coin whose denomination furnishes the unit of 
reckoning; but even if governments failed to do 
this, the people would not fail to establish and 
maintain a standard for themselves. Such a 
standard being chosen in a gold coin called a 
dollar, and these dollars being minted freely for 
the convenience of the people, my readers will see 
clearly how they come to have their first use as 
money by becoming a medium in exchanges. A 
true medium always stands between two other 
things and serves to relate them to each other. 
Such a medium is money. 

Having been appointed as a standard for values, 
a person having any thing to sell immediately com- 
pares his product with the standard, determines in 
his own mind how many multiples or sub-multiples 
of the standard his product will bring, that is to 
say, how many dollars or cents it is in his judgment 
worth, and offers his product for sale to anybody 
who will give him his price. Price is the value of 
any thing expressed in money. It is not certain that 
anybody will be found who will give him that exact 
sum ; because, as we have seen, it takes two to 
make a bargain ; but the seller is willing to sell his 
product for as much of the standard as he can get, 
because, being the standard^ he knows that other 
people are also comparing their products with that, 
and that, if he possesses the j-^tandard, they will be 



206 POLITICAL ECONOMY. 

willing to sell their products for his money on pre- 
cisely the same principles as he is now willing to 
sell his product for their money. It is in this way 
that money becomes a medium of exchange. It is 
a standard first, and a medium afterwards ; not a 
medium first, and a standard afterwards. Or, as I 
would rather put it, it becomes a medium in virtue 
of being first a standard. The use of the thing 
waits on the nature of the thing : the function of 
the thing follows the constitution of the thing. 

Now, the effect on exchanges of having a me- 
dium of exchange is simply marvellous. It mul- 
tiplies exchanges indefinitely on every hand, be- 
cause no man is obliged to wait before he sells his 
product till he can find somebody who both wants 
tliis product and has to sell the precise product which 
the first man wants, he sells at once for money to 
any man who but wants his product, assured that 
with this medium in his pocket he can buy the 
products which he wants at his own convenience. 
While seeming at first sight to complicate, it 
really simplifies trade. It introduces a valuable 
thing, — valuable in its own right, — but which 
everybody wants, not for its own sake, but because 
it will purchase from everybody what each person 
wants more than he wants the money. It is 
gladly received, but as gladly parted with. Every- 
body wants to take it in, and everybody wants to 
pay it out. It is good to sell for, simply because 
it is good to buy with. 

It affords no ultimate satisfaction to human wants, 



MONEY. 207 

except to the miser, who, as his name indicates, is 
a miserable being, but it is a medium through 
which those wants are really satisfied. It brings 
buyers and sellers together commercially, no mat- 
ter how far separated they may be locally. If 
there be a market for any product anywhere on 
the face of the earth, there will be some middle- 
man who will buy that product for money, and, 
transporting it, it may be to the antipodes, will 
sell it again either for more money, or for some 
product that he wants himself for an ultimate 
satisfaction, or for some product, which, being 
transported back, will sell again for more money 
than that originally given. In trade, there is, or 
ought to be, no dividing lines, no repelling barriers, 
no hostile nationalities, no local prejudices, no such 
differing media of exchanges, as shall prevent a 
legitimate product produced anywhere from find- 
ing open its appropriate market anywhere else. 
Money should be, and largely is, a universal 
medium the world over. Wherever it is, it draws 
products towards itself in the way of exchange, 
and in turn, products draw it out again in the way 
of further exchange. It is, in some respects, like 
the gravitation of the earth in relation to that of 
the moon : — it draws and is drawn in turn. 

Especially does such a medium, being divisible 
into small parts without loss, draw out from soci- 
etj a multitude of small services, which otherwise 
would certainly not be rendered at all. Were it 
not for the attractive power of the pennies, for 



208 POLITICAL ECONOMY. 

example, newspapers and flowers and apples and 
many other such things would not be sold as they 
are upon railroad trains. A medium of exchange 
in which everybody has confidence, minted in such 
sums as meet the public convenience, facilitates 
greatly exchanges which would perhaps take place 
any way, and calls out multitudes of exchanges 
which otherwise would not take place at all. 
David Hume describes money as the grease which 
makes the wheel of exchange turn easier ; which is 
right so far as it goes ; but money does more than 
make a pre-existing wheel revolve easy ; it enlarges 
the circumference of the wheel itself, multiplies 
the spokes, broadens the rim, and strengthens the 
hub. 

It must be borne in mind, however, great as is 
the power and the benefit of money as a medium, 
that it is still only a medium, — a means to an end, 
— and that what may be called the real exchanges 
of society are in services which minister to an ulti- 
mate satisfaction. What people really and ulti- 
mately want is not money, but food, clothing, 
homes, farms, factories, utensils, furniture, books, 
education for their children, various means of dis- 
play, and innumerable other means of personal 
gratification. The possession of these is mediated 
by money, but the aggregate value of these in any 
country by far surpasses the aggregate value of 
all the money there. 

According to the Census of 1870, the real and 
personal property in the United States amounted 



MOKEY. 209 

to $30,000,000,000 in that year, while the aggre- 
gate of money in that year was certainly less than 
$800,000,000. This would indicate a ratio of 
property to money of 40 to 1. Unfortunately, 
much of that money was paper-money depreci- 
ated; unfortunately, also, the inflation of prices 
that always accompanies a depreciated money 
made the aggregate of national wealth in that 
year larger than it would otherwise have been 
given. We must remember that money is a me- 
dium^ and, though vastly important as such, is 
little in amount relatively to the value of that 
which it helps to circidate. The right quantity 
of money in any country is a matter that will 
take care of itself without any need of anxiety on 
the part of anybody. There is a natural demand 
for money for these purposes of exchange, and 
gold and silver enough to answer these purposes 
are perfectly sure to come into and stay in any 
country without any decree or legislation. The 
supply is sure to wait on the demand. Let the 
mint of the comitry coin for all parties bringing 
bullion, and there will be just money enough and 
no more. If perchance too much be coined, the 
excess will flow off to other countries in trade, 
and if perchance too little, bullion will be sure to 
be knocking before long at the doors of the mint. 
This is one of the things that take care of them- 
selves perfectly. No government needs to lay 
awake of nights over the matter of sufficiency of 
money, provided only they allow no other than 



210 POLITICAL ECONOMY. 

gold and silver money within their jurisdic- 
tion. 

We have now seen that money is a tool of 
exchange, and as this particular tool is made of 
gold and silver, of course it will cost something 
to maintain and repair it. Gold and silver coins 
will wear out. But they do not wear out so fast 
as many people seem to think. Careful calcu- 
lations in the Report of the Director of the Mint 
in 1862 indicate that such coins in active circu- 
lation lose on the average 2x00" ^^ their weight 
each year. Considering how perfectly they do 
their work, considering how beautiful they are 
as works of art, considering that it would take 
2400 years to wear them all out, and considering 
the difficulty not to say impossibility of finding 
any adequate substitutes, we may reasonably con- 
clude that gold and silver coins are a cheap and 
durable instrument. Their first cost is consid- 
erable : so is the cost of any first-class machine. 
It costs something additional to keep them up 
to full weight and beauty : so also it does to 
keep in good repair and efficiency the machinery 
in a mill. No argument is good for the displace- 
ment of gold and silver coins by what is deemed a 
cheaper currency, which will not equally apply for 
the displacement of the good machinery of a fac- 
tory by cheaper and less efficient substitutes. 

This first function of money, namely, to serve as 
a medium in exchanges of all kinds, is a delicate 
and most responsible function, demanding for the 



MONEY. 211 

instrument that performs it the complete confi- 
dence of everybody year in and year out ; and the 
function cannot be satisfactorily performed except 
by a tool that costs something. To mediate values 
■well requires something highly and steadily valua- 
ble. With reference to a given volume of business, 
it is cheaper for a country to keep a smaller stock 
of coins in a more rapid circulation than a larger 
stock moving more sluggishly, for the same reason 
that it is cheaper with reference to a given amount 
of work to keep any tool employed constantly 
than occasionally, namely, the interest on the 
outlay is thus soonest secured. ■ 

For example, $1,000,000 changing hands five 
times a day will do the work in exchange of 
$5,000,000 changing hands but once a day. But 
the interest on the two sums for the day is in the 
ratio of 5 to 1. It is true that the rapidly circu- 
lated coins are abraded faster than the sluggish 
ones, but this will not begin to balance the loss of 
interest. The quantity of coin needed to make 
the exchanges will adjust itself to the habits of 
the people and to the conditions of business in 
any country ; and it is well for individuals and 
corporations to remember, that, the more rapidly 
they circulate the coin that conies into their pos- 
session consistently with the uses to which they 
have determined to put it, the better for every- 
body with whom they deal, and the cheaper for 
the country furnishing the coin. He doubly pays 
who quickly pays. Quick payments all around 



212 POLITICAL ECONOMY. 

imply relatively small stocks of coin and healthful 
conditions of business. 

The second function of money, — both func- 
tions resulting alike from the nature of money as 
an appointed standard of value, — is to serve as a 
measure of value in cases in which no money as a 
medium is required to pass. Considering that 
value is always determined by an exchange, the 
standard of value must necessarily be a medium, 
that is, something actually exchangeable against 
other things ; and it is equally necessary that the 
name or denomination of this standard should 
come to be used in the minds of men as a general 
measure of values in future contracts, credits of 
all kinds, calculations and bargainings. 

To illustrate by matters mainly parallel ; — 
Many years ago, Edward Troughton^ of London, 
a mathematical-instrument maker, took great pains 
to obtain and authenticate a standard inch, which 
has ever since been called "Troughton's inch;" 
and such was the great reputation of the man and 
his work, that that inch was greatly sought after 
by English speaking peoples as a means to correct 
and verify their measures of length. It became a 
standard inch. As such, it must offer itself as a 
tangible and measurable thing to all who wished 
to ascertain its exact length and use that length 
thereafter as a standard. This having been fre- 

1 Graduates of Williams College who had the privilege of 
attending the lectures of the late Professor Hopkins on Physics, 
will recognize my indebtedness to him for this illustration. 



MONEY. 213 

quently done, and a copy of that inch being gen- 
erally diffused for purposes of comparison, the 
denomination-inch derived from that came to be 
usable in the minds of men as an ideal measure of 
length. It is still so used. Men talk about 
inches, and calculate by inches, in thousands of 
cases in which no actual inch is used as a measure. 
Still, in every case of doubt, dispute, or difficulty, 
recourse is had to the actual inch. The ideal inch 
is kept steady in the minds of men by frequent 
reference to the outward and actual standard. 

Just so with dollars and cents. As a standard 
of value, the dollar must be an actual medium 
passing from hand to hand in exchanges, but in 
so passing its denomination impresses itself on 
the minds of men as an ideal measure of values, 
which they can use, and which they constantly do 
use, without handling the dollar itself. But, as 
before, there needs to be a check on the concep- 
tion and use of ideal dollars, by a constant recur- 
rence to palpable, actual thing-dollars. The 
denomination only comes into existence in connec- 
tion with the use of the thing, cannot possibly 
exist independently of it, and needs constantly to 
be reduced to it (as it were by actual contact) in 
order to be useful as a measure. 

The French writer Montesquieu asserted that 
there was in use among the inhabitants of the coast 
of Africa in the last century what he called " an 
ideal money," " a sign of value without money," 
the unit of which was called the macoute^ which 



214 POLITICAL ECONOMY. 

was subdivided also into ideal tenths called pieces. 
This statement was startling, as implying a denomi- 
nation without the thing denominated, as implying 
a standard of value which had no basis in a valua- 
ble thing. It was discovered, however, afterwards, 
that this money of account had its origin, just as 
we should suppose it must have had, in an actual 
macoute^ namely, a piece of stuff, a fabric, which 
they had used first as a standard of value, and 
afterwards its name as a money of account. It 
may be taken as settled, that, in order to have and 
maintain the name-dollar, we must first have and 
maintain the thing-dollar. Moreover, it is impor- 
tant to observe, that, when the thing-dollar is 
changed, there is no corresponding change in the 
name by which we denote it. We call it a dollar 
still. 

In 1834, our gold dollar was reduced 4.45 per 
cent in weight, and 1.81 per cent in fineness, 
but it was still called a dollar just the same. 
Only, as the new dollar was now the standard, and 
was considerably less valuable than the old one, 
the minds of the people became gradually accus- 
tomed to associate the word dollar with a lessened 
purchasing power; the measure in men's minds 
slowly followed the fortunes of the now lighter 
coin, and became lessened, although the same 
name attached to the coin; so far forth as the 
change in the coin was concerned, all prices were 
a little higher than before, and the denomination- 
dollar meant a little less — measured a little less — 



MONEY. 215 

in men's minds than before. This is one of the 
most delicate points in Political Economy, namely, 
that a word spelled and sounded as before comes 
silently to mean more or less, according as the 
value of that whose name the word is becomes 
more or less. The value changes first, the measure 
changes next, and the denomination does not change 
at aU. 

It is a very important inference from this, that 
the only way to keep the measure of values steady 
is to keep that thing steady, whose denomination 
furnishes the measure. There has been no change 
in our gold dollar since 1834 ; if there had been no 
other legal-tender dollar in this interval of more 
than forty years, we should have had as steady a 
measure of value in this country as it is possible 
in the nature of things to have ; and there is no 
measure used among men any thing like so impor- 
tant to be maintained as uniform as possible year 
in and year out as the measure of value; since 
contracts are made in it, annuities are measured 
by it, debts are incurred in the light of it, bequests 
are made in the terms of it, expectations are built 
on it, and all business breathes through it. Any 
change in it, making it measure more or less, in- 
volves an inevitable loss to many persons, involves 
a shock to business confidence and a shattering of 
many hopes. The measure inch is important to 
human welfare, and so is the measure pint and the 
measure pounds yet all these combined are less 
vital to the interests of men than the measure 



216 POLITICAL ECONOMY. 

dollar. To maintain this measure uniform should 
be one of the first aims of Society ; since money 
is, as Mr. Carey has well called it, the instrument 
of association, and its denominations accordingly 
should mean the same from January to December, 
from one decade to another. 

Unfortunately, legislation, wliich has been so 
often in manifold ways a foe to exchanges, has 
proved their greatest foe precisely at this point. 
For example, in 1862, the- Congress of the United 
States enacted a law, that its own paper promises 
to pay gold dollars should pass in lieu of the dol- 
lars themselves, and should be a legal-tender for 
all debts public and private, except tariff-duties 
and public debt interest. This law, substituting 
the shadow for the substance, the sign for the 
thing signified, the promise to pay a dollar for the 
dollar itself, destroyed for all purposes of domestic 
trade and calculation the old measure of value. 
The real dollars of course abandoned in scorn the 
circulation in which they were legally regarded 
as of no more consequence than the unfulfilled 
promises to pay them. With a new medium^ there 
came in of course a new measure, if that can 
properly be called a measure, which varies from 
day to day and from month to month. I have 
just laid down the New York Evening Post 
of yesterday (Sept. 21, 1876), having noticed in 
that number the quotations of greenbacks in gold 
for that day and five days previous. The value 
was not the same on any two successive days. 



MONEY. 217 

There were three differing values for those six 
days. Indeed, there were many more, but these 
were the quotations at 12 o'clock meridian on the 
days named. What would be said of a measure 
of length or capacity, — a yardstick or a quart 
cup, — which varied like that ? 

These small daily variations, however, are 
nothing in comparison with the variations which 
have taken place in the value of this money from 
year to year since it was issued in 1862. Before 
that year was out, the greenback was only worth 
75 per cent in gold, in other words, coin bore a 
premium over paper of 32 per cent. In the course 
of the next year, the premium varied from 25 to 
74 per cent, in other words, the paper was worth 
from 80 down to 58 cents a doUar in gold. In 
1864, the variations in value were still more 
extreme ; the premium commencing in January at 
52 per cent, and rising in July to 185 per cent, 
and ending in December at 128 per cent ; the cur- 
rent dollar being worth in gold at the three points 
indicated 65^ 35, and 43 cents. In 1865, the ex- 
treme premiums of the year were 133 and 47 per 
cent, the paper dollar thus rising in an irregular 
way from 42 to 69 cents to a dollar in gold.^ 
Since then the premium on gold, though rising 
and falling more or less in every year, has slowly 
settled on the whole to its present status, at which 
the greenback is worth about 90 cents on a dollar. 

1 I have used for this th&excellent table in Bowen's Political 
Economy. 2d edition. 



218 POLITICAL ECONOMY. 

Now, it is to be observed, that this paper medium, 
having driven gold and silver out of circulation in 
accordance with a universal law soon to be ex- 
plained, and varying in actual value (assuming 
gold to be a standard) from 35 cents to 90 in a 
dollar, was called a dollar all the time, is now 
called a dollar, there is no other current dollar, 
and consequently the dollar-measure, so far as 
there has been one, has varied with the varying 
purchasing-power of the doUar-bUl ! What a meas- 
ure this has been for the purposes of business dur- 
ing the last fifteen years ! An india-rubber yard- 
stick for measuring cloth is the only suitable 
symbol for it ! Rational calculations in business 
have been impossible. They are impossible now. 

Largely as a result of this uncertain money and 
variable measure of values, a gigantic commercial 
crisis has been dragging its slow length along for 
three years ; failures have been innumerable, 
losses uncountable, and business despondency well- 
nigh universal. There can be no question, though 
'from the nature of the case it cannot be demon- 
strated, that the losses of property resulting 
directly and indirectly from the adoption of this 
false system of a paper legal-tender have been a 
hundred-fold greater than all the expense would 
have been in securing and maintaining an honest 
dollar during all the years of the war and all the 
years since ! 

Whether the gold dollar, which the government 
has demanded in payment of tariff-taxes, and 



MONET. 219 

which it has paid out in interest on the public 
debt, and which has all the time been minted in 
small quantities for these purposes, has been such 
a standard of value for the purposes of the com- 
parison with it of the value of paper-money and 
the percentages of its depreciation as it would 
have been had there been no other legal-tender, is 
a point on which I do not feel inclined decidedly 
to pronounce. My belief is that gold has been 
during the past years relatively one of the cheap- 
est articles in this country as estimated in paper- 
money, in other words, that the premium on gold 
has not been equal to the average inflation of 
prices in consequence of the use of a depreciated 
currency. The demand for gold has certainly been 
less than it would have been had there been no 
other legal-tender and gold been freely used in 
the circulation, and a lessened demand for any 
commodity, other things being equal, lessens of 
course the value of that commodity. 

That gold has been relatively cheaper here 
than elsewhere, as estimated in other commodities, 
is certain from the fact that our large annual 
product of gold has been regularly exported, and 
probably also a considerable portion of the stock 
had in hand in 1862. I am inclined to think, 
accordingly, that the daily quotations of the value 
of the paper-money in gold has been unnaturally 
favorable to the paper, and, consequently, that 
the last ten per cent of difference to be gotten 
over before we can reach specie payments, will be 



220 POLITICAL ECONOMY. 

the hardest to be gotten over of any, since the 
demand for gold needful to restore the currency 
will raise its value relatively to that of paper, and 
put an extra margin of difficulty just at the end in 
returning to specie pajonents. Whatever may be 
thought about this, the gold dollar, though practi- 
cally demonetized and discarded, has been the 
only accessible standard of comparison during this 
interval of the destruction of natural values, and 
has doubtless given us results at least approxi- 
mately accurate. 

Perhaps it ought also to be noticed in this con- 
nection, that, since gold has been in demand as a 
medium for two limited purposes only, and has 
become in consequence more than ordinarily a 
mere commodity, the variations in the daily quo- 
tations may sometimes be owing in part to a 
greater or less difficulty than usual in getting 
gold for that day. Indeed, it is not claimed that 
gold, under any circumstances, is an absolute 
standard of value, which is a contradiction in 
terms and an impossibility, but only that it is the 
best attainable standard, and better when the sole 
legal-tender and a part of the currency than when 
mostly displaced by a depreciated paper-money. 

We are now in position to entertain the propo- 
sition that gold and silver constitute the best money. 

1. The first and main reason for the truth of 
this proposition is, that these metals have been 
found by experience to be less subject to fluctua- 
tions in their value than any other articles known. 



MONEY. 221 

Since money is the standard of value, it follows 
that that which is to serve as money must be both 
valuable and as little as possible subject to varia- 
tions in value. Gold and silver meet this essen- 
tial test better than any thing else. Many other 
things have been tried, as we have seen, but these 
have all with one exception, namely, paper-prom- 
ises, been long ago discarded by all the more civ- 
ilized nations in favor of gold and silver. Saga- 
city, which early lighted on these metals as money, 
has been confirmed by experience, which has 
steadily and increasingly held on to them as 
money; and it has been the perception on the 
part of the most enlightened minds, that these 
metals maintain their value steadier than any thing 
else, that has kept them, and is likely to keep 
them, the money of the world. 

It is true, that silver has experienced during 
this year (1876) a remarkable decline in value, and 
that it has been subject heretofore to some consid- 
erable variations, particularly after the discovery 
and conquest of the silver mines of the new world 
by the Spaniards, and that the perception of this, 
together with the undoubted difficulty of main- 
taining a double standard consisting of gold and 
silver both, has led some of the leading nations, 
as England, Germany, and the United States, to 
make gold alone the standard, and use silver only 
for subsidiary coins; still, after all, it remains 
true that silver, next to gold, constitutes the best 
money, and that gold and silver together in right 



222 POLITICAL ECONOMY. 

adjustments constitute an almost ideal and perfect 
money. In respect to the present decline of sil- 
ver, it must be said, that the average price in gold 
for the past thirty years has been about 60 pence 
an ounce in the London market; that a few 
months ago it experienced a sudden fall, and went 
down for a few days to the neighborhood of 46i 
pence ; that it has since been slowly rallying, and 
now stands at about 57 pence ; that the only 
explanation of this great decline is the present 
and prospective fertility of the silver mines in the 
western parts of the United States, and the fact 
that Germany, having adopted the sole standard 
of gold, seemed to menace the silver market with 
the sale of her old silver; and that no reasons are 
known why the value of silver as measured in 
gold may not be hereafter as steady as it has been 
heretofore, though there seem to be some reasons 
in the superior productiveness of silver mines and 
in the abandonment of the double standard by 
some of the nations why silver may rule at a 
lower value in gold than heretofore. 

Indeed, silver has already pretty steadily, 
though on the whole very slowly, declined in its 
power to purchase gold from the earliest notices 
of their comparative value till the present time. 
Livy mentions that their relative value was 1 to 
10 about 189 B.C. ; Suetonius says that Julius 
Csesar on one occasion exchanged the two at 1 
to 9 ; under the early Roman emperors it was 1 to 
12, and from Constantine to Justinian about 1 



MONEY. 223 

to 14. In Greece, it was much the same, since 
Herodotus mentions it as 1 to 13, in his day, 
which was the fifth century before Christ, though 
Plato, a little later, calls it 1 to 12. In England, 
before the discovery of America, it was about 1 to 
10 ; after that discovery and its consequences, 
silver declined till in 1717 the last legal rating 
of the two put them at 1 to 15|^ ; and in 1816, the 
double standard was abandoned, silver was practi- 
cally demonetized by debasing the coins in weight, 
and since then has only been legal-tender to the 
amount of 40 shillings. 

In the United States, when the mint was first 
established in 1792, the legal rate of exchange for 
the two metals was fixed at 1 to 15, which proved 
an under-valuation of gold, and tended to drive 
the gold coins abroad ; in 1834, this difficulty was 
sought to be remedied by a new legal valuation 
which made the rate 1 to 16, and this went too far 
the other way, and led to the exportation of silver 
coins ; and in 1853, the double standard was aban- 
doned by the United States also. Still, silver held 
its own in the market, and even for a while gained 
upon gold, standing in 1859 at 1 to 15^, since 
which time silver has grown cheaper, standing 
before the late sudden fall at about 1 to 15-|. 
Notwithstanding these variations as towards each 
other, and consequently as towards all other sala- 
ble things, gold and silver have been in the past 
the steadiest in their value of any articles known 
among men, and are likely to continue so in the 



224 POLITICAL ECONOMY. 

time to come, and we are able to give some good 
reasons for this. 

(1.) The demand for these metals is very steady. 
They are wanted for two general purposes, first, 
for use as money, and second, for use in the arts. 
Probably not far from one half of the aggregate 
of these metals in the world is in the form of 
money, and the other half in the form of plate, 
utensils, art-works, and ornaments. It makes no 
difference, so far as value is concerned, for what 
purpose any object is desired ; and the demand for 
these metals for use in the arts and for purposes 
of ostentation contributes to the steadiness of their 
value just as much as the demand for them as 
money; and the result of this demand has this 
additional advantage, that there is always at hand 
in the form of plate a reservoir from which a 
chance chasm in the coin may be replenished, or 
an extra demand for it met. As a parallel case, 
barley is steadier in its value than it otherwise 
would be because it is in demand for food and also 
for malting purposes. It is the combined demand 
for all uses that helps to give any thing its value ; 
and accordingly, it is fortunate for the interests 
of gold and silver as money, that there is a con- 
stant and well-nigh universal demand for them in 
the useful arts and for purposes of luxury. Since 
the value does not depend on one use but on 
many uses, an ounce of bullion of standard fine- 
ness destined for the smelting-pot of the artisan is 
worth within a trifle as much as an ounce of 
coined money. 



MONEY. 225 

The Bank of England is obliged by law to 
buy all bullion and foreign coins of standard 
fineness offered to it at <£3 17s. Qd. per ounce, 
which, when coined, only make <£3 17s. lO^d. — 
a difference of three halfpence. If, in the prog- 
ress of civilization, less gold and silver should be 
desired for purposes of ostentation, more doubt- 
less will be wanted in the useful arts, and much 
(perhaps more than at present) in the form of 
money, so that there is a prospect of a steady 
demand for them in the future, as there has been 
in the past, and this steady demand is one condi- 
tion of a steady value, and a steady value is the 
grand condition of a good money. 

(2.) The cost of production of these metals is 
very uniform. Correspondent to a steady demand 
there is a steady supply under circumstances giv- 
ing a pretty uniform cost of production the world 
over. Nature herself has indicated, in a manner 
not to be mistaken, her intention that these metals 
should be the money of the nations. She has 
scattered them almost all over the earth, not 
much on the surface where they can be gathered 
without difficulty, but in the rocks which require 
to be crushed before they will yield their treas- 
ures. There were surface washinsrs in California 
from the rocks already disintegrated by nature, 
but these were soon exhausted ; special inventions 
have facilitated mining as well as other branches 
of industry ; some mines are richer by nature or 
better located than others ; yet, on the whole, the 



226 POLITICAL ECONOMY. ' 

obstacles are pretty much the same everywhere — 
the cost of production is remarkably uniform. If 
the ores become richer, they are apt to be deeper 
down in the bowels of the earth. Water becomes 
an enemy, as well as gravitation. Sentinels of 
some sort guard faithfully their Golden Fleece. 

Sometimes it becomes more profitable to work 
over again the slag of former ages through im- 
proved modern methods than to make fresh incur- 
sions into the rock, as a French company is now 
working in the once-used material of the silver 
mines of Laurium in Greece — those mines to 
which Xenophon gave his attention in the earliest 
known treatise on Political Economy. There is 
an illusion in the minds of some men, as if it were 
possible for many to get rich suddenly by mining, 
through overlooking the fact that the value of 
gold and silver depends on desires and efforts 
just like every other value. If men should find a 
mountain of gold, they would also find that its 
value would decline in some proportion to the now 
greater ease of obtaining it. As it is, the cost of 
production is large and steady, and this is the 
second condition of a steady value. 

(3.) The great quantity of these metals is 
favorable to their steady value. The accumula- 
tions of ages are so vast, that they receive the 
annual tribute from the mines, much as the ocean 
receives the waters of the rivers, without sensible 
increase of its volume, and part with the annual 
loss by abrasion and shipwreck, as the sea yields 



MONEY. 227 

its waters to evaporation, without sensible diminu- 
tion of volume. The yearly supply and the yearly 
waste are small in comparison with the whole mass ; 
and therefore the relation of the whole mass to 
the uses of the world, as well as the purchasing- 
power of any given portion, remain comparatively 
steady. Quantity is not an element in value 
strictly so called, but, in connection with dura- 
bility, it is an element in steadiness of value. 
Slight changes scarcely affect a great mass of any 
thing so imperishable as gold and silver. The 
mountain streams are indeed washing down the 
sides of Greylock, in plain sight from my window 
at this moment, but Greylock looms as high and 
stands as firm as when the eye of the first white 
man rested on it. It is probable that production 
at the mines might cease altogether for a little 
interval without very sensibly enhancing through- 
out the commercial world the value of gold ; as it 
is certain, from experience, that a production 
largely augmented only gradually diminishes its 
value. 

The mass of the precious metals has been aptly 
compared to the heavy balance-wheel in mechan- 
ics, which preserves an equable and working con- 
dition of the machinery under any sudden increase 
of the power, and even when the power is for a 
moment withdrawn. So far as the annual pro- 
duction from the mines exceeds the yearly waste, 
a natural and beautiful provision is made for an 
increased demand for use in currency and in the 



228 POLITICAL ECONOMY. 

arts, without much disturbing the previous rela- 
tion of supply and demand. Perishable tilings, 
like apples, lose their value rapidly under an 
abundant supply, because they must be used soon 
or never : durable things, like silver and gold, 
especially when they exist in great mass and 
under a steady demand, hold their value steadily 
amid temporary changes, and thus furnish another 
condition of a good money. 

(4.) The fluency of these metals is favorable to 
a steady value. They have great value in small 
compass. They can be carried easily from place 
to place without any loss. They are in strong 
demand almost everywhere in the world. When- 
ever, from any cause, they become relatively in 
excess in any country, and thus lose a portion of 
their previous purchasing-power, there is an im- 
mediate motive to export them to other countries 
where their power in exchange is greater, and 
thus the equilibrium tends to restore itself. There 
is both a private and a public gain in thus carry- 
ing them away, because they will buy more abroad 
than at home, and because their export helps 
maintain at home and abroad their own steady 
value, which is a great 2yu'blic gain. Formerly, the 
nations were so foolish as to prohibit the export of 
gold and silver. Cicero tells us, that this was 
done at Rome : — - " The Senate solemnly decreed 
both many times previously, and again when I was 
consul, that gold and silver ought not to be 
exported." Adam Smith tells us, that there are 



MONEY. 229 

acts of the old Scotch Parliament which prohibit 
under heavy penalties " the carrying gold and 
silver forth of the kingdom." 

England, France, Spain, and probablj^ every 
other country in Europe, did the same thing ; 
Spain especially, which became proprietor in the 
sixteenth century of the mines of the new world, 
suffered immense losses through her prohibitions, 
since the precious metals, which came in in mass 
in treasure ships from the West, were smuggled 
out in detail in galleys and fishing craft. At 
length, England, under the powerful influence of 
the East India Company, which found it profitable 
to export silver to the East, repealed her prohibi- 
tions in 1663, and gave that Company and private 
traders liberty to export freely. At present, no 
civilized nation attempts to prevent the export or 
import of gold and silver; and the remnants of 
prejudice in this country against exporting gold are 
fast dying out. The gold is not given away ; it is 
sold, and sold for more than it will bring at home ; 
otherwise it would not be carried abroad. There 
is the same immediate gain in this as in other 
exchanges, with the great incidental advantage in 
addition, that such action tends to keep the value 
of the metals pretty uniform everywhere. Under 
freedom, they go and come at will. In 1850-1860, 
both years inclusive, the United States exported 
$502,789,759, coin and bullion, and during the 
same period imported $81,270,571, coin and bul- 
lion. These metals may be called the blood of 



230 POLITICAL ECONOMY. 

international commerce, and there are natural arte- 
ries and veins for them to flow through ; they will 
go, as the blood does in the body, where they are 
most wanted, and will return as freely when they 
are wanted most at home. 

It may be laid down as an axiom, that no 
country will export, for the sake of getting other 
things, those things which are more needful for its 
own welfare ; and there need be no fear that any 
nation which cultivates its own advantages under 
freedom will ever lack a sufficiency of gold and 
silver for all purposes of money. The greater the 
enterprise and skill, the keener the development 
of all peculiar and presently available resources, 
the more honorable and free the commercial sys- 
tem, the surer is any nation, whether it be a gold- 
bearing country or not, of securing the gold and 
silver which it needs. This is so, because there will 
be a good market to buy in, and they who have gold 
will resort thither to buy. Great Britain is not a 
gold-producing country, but London nevertheless 
is the bullion market of the world. The precious 
metals flow into and away from that market, just 
as the tide flows up the Thames and ebbs away 
again, because the business of the world centres 
in London, and wherever business is there must be 
money. Now, the fluency of gold and silver, by 
which they pass so easily in commerce to those 
places where their present value in exchange is 
greatest, and return as easily when the conditions 
are reversed, tends powerfully to keep their value 



MONEY. 231 

steady throughout the commercial world, and con- 
sequently to make them the best standard of 
value, that is, the best money. 

(5.) The durability of the precious metals is 
favorable to the steady value of the money made 
from them in this respect also, that the coins on 
occasion may pass very rapidly round in the circu- 
lation without much loss from abrasion, and thus 
temporarily do the work in exchange, which would 
otherwise require an enlargement of the mass of 
money. An increased rapidity of circulation, 
which coin is capable of without impairing it, 
meets the temporary extra demands for money 
without increasing the stock of coin, and thus 
tends admirably to keep the value steady within 
certain limits. If the mass had to be increased in 
brisk times, then its value would decline in slack 
times. When enterprises are multiplying and 
exchanges are being permanently increased in 
number and variety, then there must be a larger 
amount of money, and this larger amount will be 
secured in the ways already indicated, with per- 
haps slight disturbances of value ; but the tem- 
porary ebbs and flows of business need have no 
effect at all on the mass of metallic money, but 
only on its movement, and its value consequently 
is not disturbed at all. This delicate function of 
faster and slower movement cannot be so well 
performed by paper-money, partly because that is 
rapidly worn out and requires new issues, but 
mainly because there is no such confidence in mere 



232 POLITICAL ECONOMY. 

promises as is always and everywhere accorded to 
gold and silver coins. Great pains have some- 
times been taken in this country to get paper- 
money out into circulation, and off to a distance 
from the place of issue, so that it cannot easily 
get back : it does not go of itself, as go and come 
the coins. This fifth point, though subordinate 
to the others, is worthy of enumeration along with 
them, and is another ground of the steady value 
of gold and silver money. 

2. The second general reason why gold and 
silver constitute the best money is the important 
fact, that governments have little to say or do about 
the value, quantity, or mode of circulation, of such 
money. In all essential respects such money is 
wholly self-regulating, while its only competitor in 
civilized countries, namely, paper-money, is always 
the creature of some government, which deter- 
mines the conditions of its issue, and attempts, at 
least, to secure the reality of its redemption. We 
have already seen that coins do not owe their 
value to the stamp of the government, since the 
metal in them is worth within a trifle as much 
before coinage as after. Coinage publicly attests 
the quantity and quality of the metal in the 
coin, and that is all. Of the value of their coins 
governments say nothing. They can say nothing. 
That depends on men's judgments, and not on 
edicts at all. No law of the United States can 
add a fraction of a cent to the value of a gold 
dollar. The law says, that a gold dollar shall 



MONEY. 233 

consist of 25|^ grains troy of gold nine-tenths fine, 
the mint stamps it as of that weight and fineness, 
and it thereafter takes its own chance as to value. 
Government has done with it. It is now in the 
hands of the people. 

If the government, however, thinks it best to 
maintain a double standard, that is, a silver dollar 
legal-tender to all amounts alongside a gold dol- 
lar equally legal-tender, then it must take upon 
itself to decide the relative value of the two met- 
als each in each. Thus England said in 1717, 
that 1 ounce gold in her coinage should equal 
15^ ounces silver in the same ; the United States 
said in 1792, that 1 ounce gold in their coinage 
should equal 15 ounces silver, and again in 1834, 
that 1 ounce gold should equal 16 ounces silver ; 
but no one of these edicts happened to hit the 
market-rate of the two each in each at the time, 
and the market-rate thereafter in each case did 
not pay any attention to the law, but adjusted 
itself independently under the law of supply and 
demand, shrewd debtors paid their debts in which- 
ever metal happened at the time to be relatively 
cheaper, exporters sent abroad in balances the 
metal legally undervalued at home, and practical 
difficulties arising from these sources have led both 
these countries to discard the double standard. 

Silver coins in England are only legal-tender to 
the sum of 40 shillings, and in this country to the 
sum of 85. In both countries, the government 
coins as much silver as it deems the convenience 



234 POLITICAL ECONOMY. 

of the people requires, not coining silver for 
individuals, but itself making a profit out of the 
issue. The same is true in both countries in 
respect to the copper coinage, the public profit on 
the issue of that being usually about 100 per cent. 
Governments, accordingly, while they determine 
certain things about subordinate coins and their 
relations to each other, do not even undertake to 
say any thing about the value of gold and silver, 
which follow their own laws and pursue their own 
course, with very little reference to mints. 

Governments, too, wisely leave to the people 
the whole question of the quantity and mode of 
circulation of their principal and wholly legal- 
tender coins. The Bank of England is obliged 
by law to buy and pay for in coin all gold bullion 
offered it for sale, paying for it three half-pennies 
less by the ounce than the bullion will make of 
stamped coin. This is the same thing as coining 
for all comers all the gold they bring at a seignior- 
age of .032 per cent, practically equivalent to 
free coinage. By the law of 1874, the United 
States charge nothing for coining gold ; the French 
government charge .216 per cent seigniorage on 
gold coins ; so that, practically, it is left to the 
people to say how much money they will have 
coined, and, having received it from the mint, 
they are at liberty to do just what they please 
with it, — they may hoard it, they may melt it up, 
they may circulate it at home, they may export it 
abroad, at will. Now, it is a great gain to have 



MONEY. 235 

a money with which the government has nothing 
to do except to mint it, — a money that asks no 
favors, needs no puffing, never deceives anybody, 
knows how to take care of itself, is always respect- 
able and universally respected. 

3. The third general reason why gold and sil- 
ver constitute the best money is found in their 
physical peculiarities, by which they are uniform 
in quality^ conveniently portable^ divisible without 
loss, easily impressible, and always beautiful. Pure 
gold and silver, no matter where they are mined, 
are exactly of the same quality all over the earth. 
Gold is gold, and silver is silver. The gold mined 
to-day in California differs in no essential respects 
from the gold used by Solomon in the construction 
of the Temple, and the silver out of the Nevada 
mines is the same thing as the silver paid by Abra- 
ham for the cave of Machpelah. Nature with her 
wise finger has thus stamped them for the univer- 
sal money ; and a universal coinage, that is, coins 
of the same degree of fineness, and brought into 
easy numerical relations with each other in respect 
to weight, and, though coined in the four quarters 
of the globe, yet current everywhere by virtue of 
universal confidence in them, for which the first 
grand provision is this uniformity of quality, is 
one of the dreams and hopes of economists, that 
is yet to be realized in the future. 

Gold and silver are sufficiently portable for all 
the purposes of modern money. Their weight is 
little relativelj'^ to their value. A thousand dollars 



236 POLITICAL ECONOMY. 

in gold are not indeed carried so easily as a bill of 
exchange or a bank-note ; and expedients are 
easily adopted, and have been in use since the 
days of the Romans, by which the transfer in 
place of large masses of coin is for the most part 
obviated ; these expedients will all be explained in 
the following chapter on Credit; our proposition 
does not deprecate at all the use of these expedi- 
ents of commerce, which are mere credit and not 
money proper; but for money proper, for that 
which gives birth to and maintains the denomina- 
tions of value, for that which passes from hand to 
hand in ordinary exchanges, we do maintain that 
gold and silver coins are conveniently portable. I 
have myself carried across the ocean, incased in a 
glove-finger and borne in a vest-pocket, a troy 
pound of English sovereigns worth about $230, 
scarcely conscious of their weight, although easily 
re-assured of their presence by a touch of the 
hand. The experience of those countries, like 
France and Germany, in which the money has 
been mostly metallic, has not pronounced it oner- 
ous on account of its weight ; and, at any rate, it 
is better to accept all the other immense advan- 
tages of gold and silver money, together with a 
little inconvenience as to weight, if one chooses to 
insist on that, than to adopt substitutes every way 
inferior as money, except that they are lighter in 
our purses. They are unfortunately " lighter " in 
other respects also. 
, Moreover, gold and silver differ from jewels, 



MONEY. 237 

and most other precious things, in that masses of 
them are divisible, without any loss of value, into 
pieces of any required size. The aggregate of 
pieces is worth as much as the mass, and the mass 
as much as the pieces. This is a great advan- 
tage in money, because for the convenience of 
business, a considerable variety of coins is re- 
quired, and the proper proportion of each kind is 
a matter of trial, and if any kind be minted in 
excess of the demand nothing more is required 
than to remint in other denominations, and the 
whole value is thus saved to the currency in the 
most convenient form. For example, our gold 
coins at present are $5, $10, and $20 pieces ; 
the silver coins are halves, quarters, and dimes ; 
the nickel-copper coins are five and three-cent 
pieces ; and there is a one-cent copper-tin-zinc 
coin. 

We mint also a " trade-dollar " of silver for ex- 
port purposes, which is not now a legal-tender at 
all, and which is out of harmony in weight with 
the rest of our now really beautiful coinage. It 
weighs 420 grains nine-tenths fine, and at the pres^ 
ent price of silver is worth less than a gold dollar. 
Two halves, or four quarters, or ten dimes, weigh 
385.8 grains, and are worth to-day (Jan. 8, 1877) 
88 cents in gold. The five and three-cent pieces 
are 75 parts copper and 25 parts nickel. The one- 
cent piece is 95 parts copper and 5 parts tin-zinc. 
The gold pieces are legal-tender to all amounts, 
the silver pieces only to the sum of five dollars, 



238 POLITICAL ECONOMY. 

the five-cent piece to the sum of one dollar, the 
three-cent piece to the sum of sixty cents, and the 
one-cent piece to the sum of four cents. The five- 
cent piece is minted after the French metric sys- 
tem, weighing precisely five grammes^ and five of 
them laid along in order measuring just a decimetre 
in length. 

All these coins, except the gold pieces, are in 
part a token-money, that is, worth less than they 
purport to be worth. The gold and silver coins 
are all nine-tenths fine, and the intrinsic value of 
the silver pieces depends of course on the price of 
silver bullion, the silver pieces being intrinsically 
much more valuable than the nickel, and the 
nickel than the copper. All these subordinate 
coins are of course unfit for export, gold only 
going abroad, and as the government buys at 
market-rates the silver, nickel, copper, tin and 
zinc, and only finds out by trial the true quantities 
and proportions of coins needed by the public, 
it is a great advantage that these metals may be 
reminted without loss into other denominations 
according to popular demand. 

Then, gold and silver are easily impressible by 
any stamp which the government chooses to put 
upon them. Indeed in their natural state they 
are too soft to maintain long the impress of the 
die. Accordingly, for coinage purposes they are 
alloyed with another metal, chiefly copper, since 
by a chemical law, whenever two metals are mixed 
together, the compoimd is harder than either of 



MONET. 239 

them in a pure state. Most of the nations now 
use in their gold and silver coins one-tenth alloy, 
but England still adheres to her ancient rule of 
one-twelfth only. So compounded, coins receive 
readily and retain for a long time with sharp dis- 
tinctness the legend and other devices chosen for 
them to bear. In monarchical countries, the head 
of the reigning sovereign is usually stamped upon 
the coins ; and there was a curious debate in the 
first Congress of the United States, whether the 
heads of the successive Presidents should not 
similarly be impressed upon the coins minted 
during their respective administrations ; but this 
proposal was negatived, as was also a motion to 
substitute the head of Columbus, and an emblem- 
atic figure representing Liberty was then hit upon 
and h.a.3, been since continued. 

Quite recently, some of our coins have been 
made to bear the appropriate legend " In God we 
trust." The national coat of arms is frequently 
impressed upon coins in the various countries, by 
which means patriotic associations are connected 
with the current money. Although the alloy hard- 
ens the coins, yet after long usage they will lose a 
part of their weight by abrasion, and governments 
usually indicate a short weight, after coming to 
which the coins are no longer legal-tender. An 
English sovereign weighs 5 pennyweights 3^||- 
grains, containing 113g|^ grains of fine gold, and 
when it falls below 5 pennyweights 2| grains, it 
loses its legal-tender character. There is an Eng- 



240 POLITICAL ECONOMY. 

lish half sovereign in gold ; five- two- and one- 
shilling pieces in silver ; and pence, halfpence, 
and farthings in bronze. The bronze coins are 
only worth about one-fourth of their nominal 
,value ; and pence and halfpence are only legal- 
tender to the amount of one shilling, and far- 
things to the amount of sixpence. One English 
shilling equals 24J of our cents, gold. 

Lastly, gold and sUver, when coined into money, 
are objects of great beauty. This is no slight 
recommendation of these metals for the money of 
the world. They are clean. They are beautiful. 
Their perfectly circular form, the device covering 
the whole piece, the milled and fluted edges, the 
patriotic emblem whatever it be, the religious or 
other legend, and their bright color, are all ele- 
ments in their beauty. The educating power over 
the young of a good coinage well kept up, aestheti- 
cally, historically, and commercially, is a matter of 
consequence to any country. A whole people han- 
dling constantly such money cannot fail to receive 
a wholesome development thereby. The new Ger- 
man coinage, in contrast with the old money of 
the German States, furnishes an illustration of all 
this. The new German coins from highest to low- 
est are very beautiful, and have already tended, 
and will tend more and more to a true German 
nationality. 

The new German unit is the mark, equivalent 
to 23.821 of our cents, gold. The principal coin 
is the 20-mark piece, containing 7.1684 grains 



MONEY. 241 

of fine gold. The English sovereign contains 
7.3224 grains fine, the French 25-franc piece con- 
tains 7.2581 grains fine, and our five-dollar gold 
piece contains 7.5230 grains fine. It is one of 
the great problems of the future to remove in 
some way these slight differences, and thus prac- 
tically to unify the money of the world. The 
mark-system is decimal, being subdivided into gro- 
schen and pfennigs. It is quite like our dollars, 
dimes and cents, although each of these denomina- 
tions is rather more than four times larger than 
the corresponding German ones. For the present, 
until the old silver is gotten rid of, the Prussian 
thaler is still current, passing as equivalent to 
three marks. The new mark-system is a skilful 
modification of the old Prussian money, while at 
the same time it is completely decimal, as the old 
system was not. This partial national continuity 
is the only thing that goes to reconcile one to the 
often regretted fact that the new German mark 
was not made equivalent either to the English 
shilling or to the French franc. 

The French franc and its multiples, notwith- 
standing the ugly fraction in their metric weights, 
have already gained great triumphs as towards a 
universal money. France and her colonies, Belgi- 
um, Switzerland, Spain, Italy, Greece, Roumania, 
and Austro-Hungary in part, have now a common 
money based on the French franc. Austria began 
in 1870 to coin gold pieces of eight and four flor- 
ins, the same in weight and fineness as the French 



242 POLITICAL ECONOMY. 

20 and 10 franc pieces ; and decreed in 1873, that 
foreign gold pieces of the French system be ac- 
cepted in Austro-Hungary in the ratio of 2i francs 
to the florin. The five-franc gold piece, which is 
the unit of the system so far as the gold coinage 
is concerned, weighs 1612.9 milligrams ; the mul- 
tiples of this unit are decimal, or at least divisible 
by 5 ; and while the coins in these countries bear 
the emblems preferred by each they are legal 
tender in all. 

Our gold dollar weighs 1671.8 milligrams, and 
if it were in future coining to be reduced so 
^s to be equal to five francs, American gold 
would thereafter circulate freely wherever the 
French napoleon (20 francs) now circulated, and 
this would tend powerfully to make the dollar 
as a denomination the future universal unit, as it 
is already the unit in many countries, and as the 
French have no simple name for their five-franc 
piece. This would require our dollar to be re- 
duced in weight 3.5 per centum. Then, if the 
English sovereign were lowered 0.88 per cent in 
weight of fine gold, the following very simple 
ratios would obtain, namely, 25 francs = $5 =£1. 
Even this would leave the German mark out of 
harmony with the rest, but as the Germans have 
already adopted bodily the metric system from the 
French, it is not too much to hope that they will be 
willing to listen by and by to some modifications 
of their system in order to bring it in some way 
into harmony with that of other nations. I con- 



MONEY. 243 

fess, that to my mind the fairest prospect to an in- 
ternational and universal coinage lies through the 
adoption on the part of Great Britain and the 
United States of the French five-franc unit, to be 
called a dollar in all languages, and to be the exact 
equivalent of 4 English shillings, and of 2 Aus- 
trian florins. 

Before passing to discuss paper-money briefly, I 
must explain what is coming to be called " Gresh- 
am's Law of Currency," from Sir Thomas Gresh- 
am, a financier of the time of Queen Elizabeth. 
Aristophanes, the Greek comic poet, had noticed 
even in his early day that good coins of full 
weight were apt to be crowded out of the circula- 
tion by the lighter and poorer pieces, and, mistak- 
ing the cause of this, satirized his countrymen 
unmercifully for preferring bad coins to good, and 
demagogues, like Cleon, for rulers, to honorable 
citizens. The following are the verses : — 

** Oftentimes have we reflected on a similar abuse, 

In the choice of men for office, and of coins for common use; 

For your old and standard pieces, valued and approved and 

tried, 
Here among the Grecian nations, and in all the world be- 
side. 
Recognized in every realm for trusty stamp and pure assay, 
Are rejected and abandoned for the trash of yesterday; 
For a vile, adulterate issue, drossy, counterfeit and base, 
Which the traffic of the city passes current in their place I 
And the men that stood for office, noted for acknowledged 

worth, 
And for manly deeds of honor, and for honorable birth; 



244 POLITICAL ECONOMY. 

Trained in exercise and art, in sacred dances and in song, 
All are ousted and supplanted by a base, ignoble throng; 
Paltry stamp and vulgar mettle raise them to command and 

place, 
Brazen counterfeit pretenders, scoundrels of a scoundrel race ; 
Whom the state in former ages scarce would have allowed 

to stand 
At the sacrifice of outcasts, as the scapegoats of the land." 

Gresham was the first to explain fully what 
Aristophanes had noticed and falsely referred to 
the bad taste of his generation. It is true always 
and everywhere that an inferior money, so long as 
it circulates at all, drives a Superior money out of the 
circulation ; and this is rather creditable to human 
nature than otherwise, when the true ground of it 
is perceived. In most spheres, what is excellent 
tends to displace what is inferior, but in the 
sphere of money the exact reverse takes place, 
and bad money drives out the good, for the simple 
reason that money is an instrument of exchange, 
and nobody wants it except to buy with, and so 
long as the government and the community treat 
light coin and full coin as of equal value in cur- 
rent exchanges, receiving them indifferently in 
payment of debts and of taxes, it is clear that few 
persons will give in payment of debts and of taxes 
what is really and elsewhere worth more so long 
as what is really and elsewhere worth less will go 
just as far. The inferior pieces will abide in 
a market where they will fetch just as much as 
the superior pieces, while the superior pieces will 



MONEY. 245 

take on a form or migrate to a place in which some 
advantage can be gained from their superiority. 
Thrown into a crucible, or exported in commerce, 
this superiority immediately manifests itself; and 
therefore into the crucible or into the channels of 
foreign trade it might be predicted that such money 
would be thrown, and all experience testifies with 
one voice that into exports, melting-pots, or private 
hoards, such money always goes. 

This principle is now called Gresham's Law, and 
it applies equally to purely metallic currencies and 
to currencies mixed of coin and paper. The city 
of Amsterdam founded its famous bank in 1609, 
because the clipped and worn foreign coins circu- 
lating in that then great mart of trade drove out 
the good money which the mint of the city con- 
stantly poured in. There was no paper-money in 
Amsterdam before or afterwards ; the bank became 
a bank of deposit merely ; it took in all the old 
coins at their intrinsic value, and had them re- 
minted at full weight ; gave depositors a credit on 
its books for all they brought ; adjusted accounts 
between merchants and others by mere transfers on 
its books ; and thus took away all uncertainty from 
bills of exchange drawn on parties in Amsterdam, 
which had been before at some ten per cent dis- 
count, bringing them up at once to par, and thus 
making it for the interest and convenience of every 
business man in Amsterdam to have these simple 
dealings with the Bank, which in turn enjoyed 
unlimited credit in the commercial world for nearly 
200 years. 



246 POLITICAL ECONOMY. 

The great English re-coinage of 1696 was com- 
pelled by similar causes ; the previous working of 
Gresham's Law as between the old silver and the 
new — the worn stamped money and the fresh 
milled money — caused great confusion in busi- 
ness, great bitterness in society, and great hopes 
among the Jacobites that they would be able by 
means of the prevailing discontent to overthrow 
the yet scarcely established revolutionary govern- 
ment of William and Mary.^ Thus we see that 
there may be deijreciation even among coins. De- 
preciation implies of course a standard ; and what- 
ever any coins are worth less than the standard 
coins of that kind is their depreciation. But 
Gresham's Law has its most marked operation in 
mixed currencies, and the word " depreciation " is 
commonly used of paper-money to express its lack 
of equality in value with gold coin. This brings 
us to the subject of paper-money. 

I lay down this proposition : — A paper-money 
is only tolerable when it is instantly convertible into 
gold or silver. This proposition rests back for its 
proof upon the nature of paper-money. Paper- 
money is a promise to pay a certain quantity of gold 
or silver. For example, in this country a five- 
dollar bill is a promise to pay five times 25| grains 
of standard gold. No other meaning than this is 
possible, since the bill does not read, This is five 
dollars, but, The United States will pay to bearer 
five dollars ; and when we go to the statutes to 

1 Macaulay's History of England, chap. 21. 



MONEY. 247 

find out what a dollar is, we ascertain that the 
United States have said that a dollar is 25|- grains 
of standard gold. No other dollar, not even one 
of silver, is known to our laws at present. There 
can be no doubt, therefore, about the nature of 
paper-money. It is a promise to pay gold. Now, if 
the promise be kept, if the gold be forthcoming on 
presentation for payment, then paper-money is tol- 
erable, its value is equal to that of the gold prom- 
ised because it brings out the gold promised ; but 
if the promise be not kept, if the gold be refused, 
then the paper-money is dishonored, it becomes 
intolerable, it depreciates as compared with the 
gold promised but not paid, and if it have a forced 
circulation, that is, if government compels credit- 
ors to receive it in payment of debts, a fearful 
injustice is done, creditors are cheated, Gresham's 
Law comes in at once to drive the gold out of 
ordinary circulation, the measure of value becomes 
variable as the wind, and irreparable mischiefs to 
business and credit follow as a matter of course. 

Paper-money is issued either by governments 
directly, or by corporations instituted by govern- 
ments. The nature of paper-money is essentially 
the same in whichever way it is issued; in the 
one case, it is the promise to pay of the govern- 
ment itself, good if kept and bad if broken, and 
in the other case, it is the promise to pay of 
organized bodies deriving their authority to act 
from the government, and the government itself 
usually feels responsible more or less for the way 



248 POLITICAL ECONOMY. 

in which they act. Those banks which issue 
paper-money are usually so connected with the 
government in one way or another, that their cir- 
culating notes have a kind of government indorse- 
ment or guaranty. We will consider as specimens 
of such banks, the Bank of England, and the 
present national banks of the United States, look- 
ing at them now solely as corporations issuing 
paper-money. In the next chapter, we shall look 
at banks generally as institutions of Credit. 

The Bank of England is the child of the Eng- 
lish Eevolution of 1688. It was incorporated by 
Parliament in 1694, in the midst of the struggle 
under Gresham's Law between the old coinage 
and the new, on condition that its stockholders 
should loan to government, then pressed for funds, 
the sum of £1,200,000, on which they were prom- 
ised 8 per cent as interest, and <£4,000 for man- 
agement, per annum. On the strength of this 
capital stock, which was all invested in the gov- 
ernment debt, the bank was allowed by law to 
issue an exactly equal amount of circulating notes, 
which at first however could only pass from hand 
to hand by successive indorsements. On several 
subsequent occasions, its capital stock was in- 
creased, that is, the stock-holders of the bank 
advanced more money to government, and each 
time the bank was allowed to issue an equal 
amount of notes additional ; and it was provided 
that if the Directors issued notes exceeding the 
amount of their capital they should be liable in 



MONEY. 249 

their private capacity. Afterwards they were 
released from this limitation, and were allowed to 
issue as many notes as they pleased, provided 
always they redeemed them in specie on demand. 

In about two years from its establishment, the 
bank fell into difficulties from having received the 
old coin and being obliged to pay out the new ; its 
enemies made a run upon it, and it was obliged to 
suspend payments ; and in February, 1697, the 
notes were 24 per cent below par. Just then, came 
the first parliamentary act increasing the capital 
stock, one-fifth of which increase was receivable 
in bank-notes, which brought tliem up to par. In 
1709, the capital was again increased, and the 
interest on the whole debt reduced from 8 per cent 
to 6. In 1711, the limitation on the amount of 
issues was removed ; and in 1716, the bank was 
exempted from the operation of all usury laws: 
why the bank only, and not other people as well, 
the Act of parliament does not state. 

In 1720, and again in 1745, when the Young Pre- 
tender made the last rally of the Jacobites, there 
were severe rmis upon the bank; on both occasions, 
in order to gain time, notes were paid in shillings 
and sixpences, and best friends were said to be ac- 
commodated first, who returned the bags of money 
as fast as they received them. In 1759, X15 and 
<£10 notes were first issued, no previous note hav- 
ing been for less than £20. In 1782, the debt of 
the government to the bank stood at £11,642,000, 
most of which bore but 3 per cent interest. Dur- 



250 POLITICAL ECONOMY. 

ing the following great war with the French, the 
constant demands of the government for money 
could not be met, and the bank continue to give 
its usual accommodations to merchants, and con- 
sequently private credit wavered and there was a 
run upon the bank for cash, under which the bank 
suspended payments in February, 1797, and did 
not resume them till May, 1821. 

During this long suspension, government and 
the business men of London did their best to hold 
up the credit of the dishonored notes, hut they were 
not made a legal-tender for debts. Government 
received them at par for taxes, and provided that 
business payments in notes should be held as pay- 
ments in cash, if offered and accepted as such ; 
debtors, having tendered bank-notes, which the 
creditor refused, had certain privileges before the 
law, which other debtors had not ; and the notes, 
accordingly, had a certain legal recognition, but 
not a forced circulation. At this time also, the 
bank was first authorized to issue X5, X2, and <£1 
notes ; and all its notes, being cautiously issued 
for some time, were kept quite or nearly to par in 
gold, which proves that under favorable circum- 
stances an inconvertible paper can be kept at par 
by sufficiently limiting its quantity ; while the 
same example proves a little further on what a 
bad money inconvertible paper is, inasmuch as, all 
restrictions being now removed and small notes 
authorized, the bank gradually expanded its cir- 
culation, and so stimulated speculation, until in 



MONEY. 251 

August, 1813, its notes were at 30 per cent dis- 
count in gold. In the following years, the in- 
evitable crisis occurred, a very large number of 
country bankers failed, the volume of paper- 
money decreased about one-half, and the notes of 
the Bank of England rose nearly to par in October, 
1816. They declined again, however, after a 
partial attempt at resumption, and then gradually 
rose till the complete resumption began in 1821. 
In 1829, all notes whatsoever for less than £5 
were forbidden to be circulated in England. 

In 1833, when the bank charter was renewed for 
the ninth time, the bills of the Bank of England 
were declared to be a legal-tender for debts, so 
long as the bank paid them on demand in legal coin^ 
hut no longer. In 1844, Sir Robert Peel caused to 
pass Parliament an Act under which the Bank of 
England is still administered, and under which 
the bank is divided into two distinct departments, 
the Issue department and the Banking depart- 
ment. The Issue department is the only one we 
have any thing to do with now, and its operations 
are entirely simj)le, almost self-acting. 

Under the law, the Directors of the bank have 
transferred to the Issue department £15,000,000 
of securities, most of which is the debt of the gov- 
ernment to the bank, and also gold coin and gold 
and silver bullion in varying amounts according to 
their discretion but averaging about £15,000,000. 
The Issue department is authorized to give over to 
the Banking department notes to the exact amount 



252 POLITICAL ECONOMY. 

of the securities, coin and bullion thus deposited. 
The Banking department can get notes only from 
the Issue department, and the Issue department 
can issue notes only to the Banking department, 
and only to the amount of the coin and bullion 
actually on hand in the Issue department plus the 
value of the securities already described. Conse- 
quently, the total power of the Bank of England 
to issue notes is limited to the sum of these two 
simple elements. Of course, the Banking depart- 
ment holds coin and bullion also for its banking 
purposes, and can get more notes at any time by 
transferring parts of these to the Issue depart- 
ment ; but the law prescribes that silver bullion 
shall only be held by the Issue department to the 
extent of one-fourth of the gold coin and bullion 
held by it at any one time. This whole legisla- 
tion has made the notes of the Bank of England 
a very safe medium of exchange. Since May, 
1821, no note has been presented for payment, 
which has not been immediately cashed. 

Still, the system is not perfect. In October, 
1847, during a severe commercial crisis, govern- 
ment authorized the bank to violate its charter, 
and to issue notes at its discretion. This extraor- 
dinary authority quieted the panic in ten minutes, 
and no more notes were actually issued than the 
previous legal limits allowed. Again in Novem- 
ber, 1857, in the next great crisis, the Banking 
department fell into difficulties, and could not 
have continued to discount another day, when 



MONEY. 253 

government suspended the law a second time, and 
bade the bank issue notes at discretion, but not to 
discount for less than 10 per cent. This permis- 
sion worked as before, the panic vanished, and 
the legal limits did not need to be exceeded. 
Again in 1866, there was a very severe crisis, and 
on the 10th of May there was a general run on all 
the London banks, and it is said that one bank 
alone paid out £2,000,000 in six hours, and after 
banking hours that day it became known that the 
house of Overend, Gurney & Co. had suspended 
with liabilities of over £10,000,000 — the largest 
failure that had ever taken place in London — 
and that evening the government sent word to 
the bank to issue notes in discounting at its own 
discretion at not less than 10 per cent. The bank 
advanced in this way £12,255,000 in five days, 
one million pounds of which was to our country- 
man, George Peabody, which saved him from 
otherwise inevitable failure, and his gigantic for- 
tune to the benevolent and patriotic purposes to 
which it was afterwards put. 

It may well be questioned whether a funda- 
mental restriction, which has to be removed on 
every occasion of extraordinary pressure, ought 
not the rather to be abolished ; and, if so, whether 
the division of the bank into two departments is 
of any further practical use, and whether the 
directors may not now be safely trusted to govern 
the issue of their notes as they govern the amount 
and rate of their discounts at their own discretion. 



254 POLITICAL ECONOMY. 

It may also be gravely questioned whether Eng- 
land is any better off, or ever has been, for the 
issue of Bank of England notes to circulate as 
money. As a hanking institution its merits and 
benefits are freely conceded, but it may reason- 
ably be doubted whether as an institution for 
circulating paper-money it has ever added one 
penny to the wealth of England. 

The amount of Bank of England notes in circu- 
lation is about .£30,000,000, one-half on the basis 
of securities, and one-half on the basis of coin and 
bullion. About £15,000,000 of other bank-notes 
are in circulation in England, making £45,000,000 
in all; while at the same time, there are about 
.£115,000,000 of gold and silver coin in circula- 
tion there. The ratio of coin to paper is nearly 
2|- to 1. Very nearly the same ratio prevails in 
France. If there were no paper-money at all in 
either country, the system of checks, which is 
thoroughly established in England but less so in 
France, would obviate for the most part all bur- 
densome transfers of coin. 

The present national banks of this country are 
a second illustration of institutions chartered by 
government issuing a paper-mone}'". These banks 
are organized under a law of Congress approved 
in February, 1863. They invest their capital stock 
in the bonds of the United States, Avhich are depos- 
ited with an officer in Washington called the 
Comptroller of the Currency, who holds them as 
security that the banks redeem their notes and 



MONEY. 255 

otherwise obey the provisions of the organic 
banking-law, but pays the interest on them to the 
banks so long as these conditions are fulfilled. 
Ninety per cent of the amount of such bonds thus 
deposited with the Comptroller is then furnished to 
the bank in circulating notes engraved and regis- 
tered by the United States, unless the capital of 
the bank be over $500,000 and under $1,000,000, 
in which case only 80 per cent is furnished in 
notes ; and if the capital be between $1,000,000 
and $3,000,000, only 75 per cent of it is returned 
in notes ; and if the capital be over $3,000,000, 
only 60 per cent ; but by the law of 1870, no new 
bank can be organized to issue more than $500,000 
of notes, no matter what the capital stock may be. 
All the banks are required to keep 5 per cent of 
their circulation in lawful money with the Comp- 
troller at Washington for the purpose of redeem- 
ing their notes on presentation there ; and in 
seventeen of the principal cities of the Union, the 
banks are required to keep 25 per cent of their 
average deposits in lawful money as a reserve, and 
in all other places 15 per cent, with which to 
redeem their notes and deposits over their own 
counters. 

By the law of 1875, all restrictions on the aggre- 
gate circulation of the national banks are removed, 
but provision is made to retire 80 per cent of the 
amount of notes issued thereafter to new banks, 
or old banks increasing their circulation, in the 
other paper-money of the country, namely, in the 



256 POLITICAL ECONOMY. 

greenbacks so-called, until these be reduced to 
$300,000,000. When this law was passed, January 
14, 1875, there were in circulation of national 
bank-notes 1351,861,450, and of greenbacks $382,- 
000,000 ; under the operation of this law, and of 
other causes, the bank-notes have now (Oct. 10, 
1876) declined to about $322,000,000, and the 
greenbacks to about $358,000,000. 

The banks can curtail their circulation at will, 
and recall their bonds from Washington ; — and 
they can recover and increase their circulation at 
will by pledging more bonds again. Under this 
system, it is scarcely possible that any note-holder 
can suffer any loss, though depositors may, for the 
United States undertakes to redeem all notes, at 
first from the 5 per cent reserve in their hands, and 
then, if necessary, by selling the bonds in their 
keeping. A few banks have failed, a few more 
have wound up their affairs as national banks, 
and nearly 2,100 are now in operation all over the 
country. Since the system began, there has been 
no genuine redemption of the notes. They have 
been redeemed, if any one desired it, in irredeem- 
able paper, that is, in the greenbacks. When 
specie payment is restored, and experience has 
been had under that, we shall be better able to 
judge of the merits and demerits of this national 
bank system, whose author was the late Secretary 
of the Treasury, and Chief Justice of the United 
States, Salmon P. Chase, who borrowed the out- 
lines and some of the details of the scheme, how- 



MONEY. 257 

ever, from the state bank system of New York. 
I have not yet seen any thing that has led me to 
suppose that this system, so far as it creates money ^ 
has added, or is likely to add, any thing to the 
wealth or happiness of the people of the United 
States. 

I will illustrate the other kind of paper-money, 
that, namely, issued directly by governments, by 
giving some account of the present greenback 
money of the United States. This will serve as a 
sample. Many governments, particularly revolu- 
tionary governments, have issued directly an irre- 
deemable paper-money ; and the assignats of revo- 
lutionary France, and the continental money of 
these American states one hundred years ago, will 
occur to many minds as examples. Those were 
never redeemed at all ; and, I believe, there has 
never been in the world an example of the com- 
plete redemption of such money by any nation. I 
expect that our greenbacks will some day be all 
redeemed in coin; the present law says that they 
shall begin to be redeemed January 1, 1879 ; but 
whether then, or later, the public faith is pledged 
to their complete redemption in gold coin. The 
first batch of this money, consisting of $150,000,- 
000, was issued almost immediately under a law 
of Congress approved Feb. 25, 1862. These notes 
of the United States, made nominally payable to 
bearer but at no specified place or date, and not on 
interest, were made legal-tender for all debts pub- 
lic and private, except customs-duties and interest 



258 POLITICAL ECONOMY. 

on the coin-bonds of the United States. It was 
also expressly stijDulated in the law that these 
notes might be funded in sums of fifty dollars, or 
multiples thereof, in the six per cent bonds of the 
United States. 

In less than a month after the passage of the 
first legal-tender act another act was passed at the 
request of Secretary Chase, approved March 17, 
1862, declaring $60,000,000 more of demand notes 
previously authorized but not made legal-tender to 
be legal-tender in like manner, and for the same 
purposes, and to the same extent, as the first notes. 
July 11, 1862, the President approved another law 
authorizing the issue of 1150,000,000 more of just 
such legal-tender notes, fundable as before in six 
per cent bonds, and $35,000,000 of these notes 
might be of denominations less than $5, but not 
fractional parts of $1. January 17, 1863, the Presi- 
dent approved of a joint resolution of both houses 
of Congress authorizing $100,000,000 more of legal- 
tenders to pay soldiers and sailors, but in doing so, 
he uttered a solemn protest against the policy of 
thus inflating the currency by forced means, which, 
he said, " has already become so redundant as to 
increase prices beyond real values, thereby aug- 
menting the cost of living to the injury of labor, 
and the cost of supplies to the injury of the whole 
country." 

March 3, 1863, a very comprehensive act was 
approved, authorizing loans to the extent of $900,- 
000,000, authorizing also $50,000,000 of fractional 



MONEY. 259 

currency redeemable in sums not less than $3 in 
legal-tenders and receivable for all dues to the 
United States less than $5, except duties on im- 
ports, and taking away also after July 1, 1863, the 
right to fund legal-tenders into six per cent bonds at 
jyar, although on the back of some of these legal- 
tenders was printed this statement : " This note is 
a legal-tender for all debts, public and private, 
except duties on imports and interest on the pub- 
lic debt, and is exchangeable for U. S. six per cent 
bonds^ redeemable at the pleasure of the United 
States after five yearsy 

It was a great breach of the public faith to take 
away in this indirect manner, or in any manner, 
from the people the right to fund notes into bonds, 
after it had been twice guaranteed in the laws 
authorizing the issue of the notes, and after the 
people had been compelled to take the notes, and 
this accounts in part for the great subsequent de- 
preciation of the notes, the excess of which could 
not, as was originally intended, be drawn easily 
into the funded debt. By the act of June 30, 1864, 
it was provided that " the total amount of United 
States notes issued, or to be issued, shall not exceed 
$400,000,000, and such additional sum not exceeding 
$50,000,000, as mag be temporarily required for the 
redemption of temporary loans^ On the 31st Octo- 
ber, 1865, there were outstanding $454,218,038.20 
of United States notes and fractional currency.^ 
The fractionals are now being rapidly replaced by 

1 See Hon. E. G. Spaulding'a " Financial History of the "War." 



260 POLITICAL ECONOMY. 

the subsidiary silver coins, and a portion, perhaps 
$70,000,000 in all, of the notes have now in various 
ways been retired. 

These legal-tenders have failed altogether to 
meet the tests of a good money. They have been 
depreciated from the first, and at times very much 
depreciated, as compared with the gold standard. 
The extreme depreciation was in the summer of 
1864, when for about fifteen days, the time of the 
operation of the gold hill passed by Congress, they 
were worth only 35 cents in a dollar gold. They 
have varied all the way from this to 95 cents in a 
dollar gold. -The variableness of the depreciation 
has been worse in its effects than the depreciation 
itself, bad as that is. The people of this country 
have had no stable standard of value since 1862. 
Nobody has known from month to month these fif- 
teen years what the value of the greenback would 
be. national calculations hi business have been 
impossible. 

While the greenbacks were still depreciating 
on the whole, creditors were constantly cheated 
by being compelled to receive less value than they 
had contracted for ; and since they have been 
appreciating on the whole, debtors have been 
compelled to pay more value than they contracted 
for. Failures have been a consequence. Discon- 
tent has been a consequence. Fallacious theories 
of money have been a consequence. A wounded 
public credit has been a consequence. At times, 
rash speculation has been a consequence. At 



MONEY. 261 

other times, long-continued depression has been a 
consequence. Great injustice as between classes 
of men has been a consequence. A universal finan- 
cial uncertainty has been one of the worst conse- 
quences. Acknowledged difficulties in the way 
of a return to a better system have been another 
consequence. Paper-money in its best estate, that 
is, when certainly convertible into gold on demand, 
is a questionable good ; but paper-money like the 
greenbacks, inconvertible, variable in value, redun- 
dant in volume, and having a forced circulation, 
is an unmitigated evil, whose power for mischief 
is indefinite and interminable. 

How shall we get back to specie payments ? 
By restoring the fundable feature 'of the laws of 
1862 removed in 1863, and by appointing a day in 
advance after which the legal-tender clause shall be 
inoperative and void. If the people of the United 
States knew certainly that after the 1st day of 
January, 1879, a day already legally appointed for 
resuming specie payments, no paper whatever 
would be legal-tender for debts ; and if they were 
allowed from now on to fund greenbacks freely 
into the 4 per centum long bonds already author- 
ized, whose interest is too low to prove over- 
attractive to the circulating medium, and thus too 
rapidly deplete it ; I believe that no other legisla- 
tion is needed, unless it might be to require the 
national banks to retain as reserve the gold inter- 
est on their bonds, to bring the country back, 



262 POLITICAL ECONOMY. 

doubtless not without something of shock and 
disaster, to the good ground occupied between 
1836 and 1862, the ground, namely, of a purely 
metallic money, or bank paper instantly converti- 
ble into that. Between those dates, the national 
government neither received for its dues nor paid 
out for its debts any thing but gold and silver 
coin. It should resume that position. And it 
would be much better in my judgment, if the feature 
of circulation were eliminated from the national 
bank system, and those institutions were restricted 
to a purely hanking business, that is to sa}'', to 
dealings in credits of all sorts except credit-money. 
If that be too great a good to be hoped for, the 
patriotic citizen may at least indulge the hope 
that those banks may be so managed and con- 
trolled as never to issue any thing but a strictly 
convertible money. 

As money is always a thing of value, and as it 
is the inmost nature of a thing as valuable that its 
owner is at liberty to part with it on his own 
terms, whoever owns money has an indubitable 
right to loan it to others at any rate of interest 
they may be willing to pay him. What are called 
Usury Laws, therefore, that is, laws of the State 
or the Nation forbidding persons to take more 
than a prescribed rate of interest on money loaned, 
are wholly out of character, and are now disap- 
pearing. Massachusetts, Connecticut, and Rhode 
Island have abolished their usury laws; and, as 



MONEY. 263 

the national banking law enacts that the banks 
may legally take the interest allowed in their 
respective States, all limitations are removed in 
these three States. No evil of any kind has fol- 
lowed their abolition. Even in the States in 
which usury laws are still nominally kept up, they 
are notoriously disregarded. It is a queer distinc- 
tion, when governments allow their citizens to 
make all other bargains and exchanges freely at 
their own discretion, and then forbid them to loan 
money at the market rates. 

Governments are careful not to bind themselves 
in this manner, and of course they ought not to 
attempt to bind their citizens, because it is useless 
to attempt it, because there is no reason why they 
should succeed in it, and because, even if they 
could succeed in it, it would be worse for all par- 
ties concerned. Our government paid twelve per 
cent on a public loan in 1860, and could get but 
little at that, because its credit was then weak; 
which shows the absurdity of its forbidding a citi- 
zen to pay over seven, no matter how weak his 
credit or great his necessity. Such laws are inju- 
rious to the public conscience so far as they are 
disobeyed, injurious to persons of weak credit so 
far as they are obeyed, and injurious to the rights 
of capital whether obeyed or disobeyed. Let them 
be abolished. 

In conclusion, we will give a summary of the 
principal points in this chapter. 

1. From the very nature of value, which always 



264 POLITICAL ECONOMY. 

implies comparisons^ a STANDARD of comparison 
becomes natural and useful: such a standard is 
money. 

2. From being a standard of comparison in 
values^ money comes naturally to be a MEDIUM in 
exchanges, passing from hand to hand to facilitate 
the ultimate exchanges of society. 

3. From being a standard of comparison in values^ 
the denominations of money come to be a MEASURE 
of all values whatever. 

4. The only way to keep the DENOMINATIONS 
steady in meaning, is to keep the medium steady in 
purchasing-power. 

6. Gold has been found by experience to be the 
steadiest in purchasing-power of valuable things: 
therefore, it is the best money. 

6. Subsidiary coins may be made of SILVER ; but 
Crresham's Law forbids a double standard. 

I. Paper-money is only promises ; promises are 
liable to be broken ; and therefore promises do not 
make a good money. 

8. Credits are good ; but that does not prove that 

CREDIT-MONEY is good. 

9. Credit-money is only tolerable when instantly 

CONVERTIBLE. 

10. Money depreciated from the highest standard 
raises prices, but not of all things equally in amount 
or uniformly in time : it works, therefore, great in- 
justice. 

II. Any money inferior to the best works a na- 
tional LOSS of necessity. 



MONEY. 265 

12. An universal coinage would he a vast interna- 
tional GAIN. 

13. The interest of money should he FREE to all 
contracting parties. 



266 POLITICAL ECONOMY. 



CHAPTER V. 

CREDIT. 

Political Economy is the science of exchanges. 
It must, therefore, present clearly the principles 
applicable to all kinds of exchanges. We have 
already learned that there are only three kinds 
of things that are ever commercially exchanged 
among men, namely, commodities, services, and 
claims. There are, consequently, only six cases of 
value possible, since something belonging to each 
of these classes may be exchanged against some- 
thing belonging to its own class and also against 
something belonging to each of the other classes, 
making six possible cases of exchange. Commod- 
ities with the mode of their production and the 
law of their exchange we have already sujBficiently 
considered ; there is nothing further to be added 
in detail in respect to personal services viewed 
economically; but the subject of Claims now 
demands and will certainly reward a complete 
explanation. It is to be noticed, that these three 
classes of things have a relation to the three grand 
divisions of time ; commodities are property in the 



CREDIT. 267 

production of the Past, services are property in 
the production of the Present, and claims are 
property in the production of the Future. What 
these chiims are in their nature, how they arise in 
practice, their different kinds, the part they play 
in the commerce of the world, and the modes in 
which they are extinguished, are the general topics 
to which the attention of my readers will now be 
directed. 

I have entitled this chapter " Credit," because, 
on the whole, that is the best word under which to 
discuss the whole subject in hand. I have found 
that the derivation of words usually casts much 
clear light on the nature of that which is designat- 
ed by them ; and of two words having apparent- 
ly the same ]!neaning, that one is to be preferred 
whose origin most illumines its meaning. The 
word credit is derived from the Latin word Cre- 
do, I believe, and the corresponding term debt from 
Debeo, / oive. The term credit, accordingly, car- 
ries the mind at once to future time, and carries it 
also to the personal action of a human will. As 
there can be no credit without debt, and no debt 
without credit, two persons, as in every other case 
of value, must be involved in every case of credit ; 
and what connects the two persons together is the 
belief of one of the parties in a virtual promise 
made by the other. 

Some exchanges are finished up at once, the 
things exchanged and the ownership in them are 
passed over then and there, and there is an end ; 



268 POLITICAL ECONOMY. 

but the peculiarity of credit exchanges is, that 
the transaction is not then and there ultimately 
closed, but one (or both) of the parties exchan- 
ging relies on the good faith of somebody to fulfil 
in the future a promise expressly or impliedly 
made in the exchange. A credit, then, may be 
defined as a right to demand something of some- 
body ; and a debt may be defined as a duty to 
pay something to somebody. There are not two 
things in the relation between a creditor and a 
debtor but only one thing — not a right and a 
duty that can be separated, but a right founded 
on the duty and a duty growing out of the right. 
The single bond connecting the two persons is 
called in the Roman Law, which is clear and full 
on the subject of credit, an Obligation. It may 
also be termed a Contract. It may also be termed 
indifferently a Credit, a Debt, a Claim. 

It makes a great difference to individual persons 
whether they owe others or are owed by others, but 
what Political Economy has to do with is what lies 
between debtors and creditors, and not with debtors 
or creditors personally. This intermediate thing, 
or right, is property. It may be, and is constantly, 
bought and sold. The right to demand from the 
debtor at some future time an equivalent for what 
the creditor renders now, is the service which the 
creditor receives from the debtor at the time of 
the exchange. It is a clear case of value. Each 
renders to the other satisfactory equivalents. The 
right to demand a future equivalent is the present 



CEEDIT. 269 

equivalent for the sake of which something else is 
rendered. All our definitions apply here perfectly. 
Considered as a mere case of value, the transac- 
tion may be said to be ended ; but, considered as 
to the nature of the exchange which requires 
another exchange to complete it, the transaction 
is not yet ended, and we must follow it in its 
principles to the end. 

The amount of transactions in credits is im- 
mense in every commercial country, and is be- 
coming constantly greater. Not only are the 
exchanges very common in which the right to 
demand future payment is one of the services ren- 
dered, but the exclusive traf&c in credits — ex- 
changes of one form of credit for another — has 
already reached gigantic proportions in all parts of 
the world. The exchanges in currency values at 
the New York Clearing-House alone for the past 
nine j^ears, 1867-76, have averaged $28,152,711,- 
026.68 a year ; and during the same nine years the 
exchanges in gold values at the London Clearing- 
House alone have averaged $24,058,845,555.55 a 
year, calling $5 the equivalent of a pound sterling. 
With trifling exceptions representing balances paid 
in cash, these immense sums represent pure credits 
exchanged against each other on the principle of 
Set-off, which, with the whole operation of clear- 
ing-houses, will be explained pretty soon. These 
figures at only two commercial points are given, 
as samples merely, of the prodigious amount of 
transactions in credits throughout the world. 



270 POLITICAL ECONOMY. 

It is time now to explain exactly the nature of 
credit, and to remove a very common misappre- 
hension that exists in relation to it. A friend of 
mine, a practical printer, was in my study a few 
days ago, and speaking of collecting his dues, he 
said ; — " When I have done a piece of work for 
a man, he has got my money ^ and I never hesitate 
to ask him for it." The sentiment of this remark 
is excellent, but its terms imply considerable mis- 
apprehension of the nature of credit. Has the 
debtor any money belonging to the creditor ? Not 
a penny. Would the creditor be justified in tak- 
ing out of his debtor's purse, if he should happen 
to find it, the amount of his debt? That would 
be downright stealing, just as much as if there 
were no debt between them. A debt is never the 
money owed to the creditor, but is always instead 
the personal duty of the debtor to pay the money ; 
that is to say, no particular money in the possession 
of the debtor, not even that which the creditor 
may have just loaned to him, belongs to the cred- 
itor so that he can seize upon it at any time — he 
has parted with his property absolutely to the 
debtor and has taken in lieu of it a right to demand 
something back, but not that particular monej', or 
any other particular monej'-. The debtor has the 
absolute property of what he has received, he can 
use it as he likes, and the creditor must wait until 
the debtor of his own free will, or compelled by 
the courts, responds to his personal duty to repay. 

Thus the depositors in a bank part with their 



CREDIT. 271 

property absolutely to the bank — the bank be- 
comes absolute owner of it — and take in return a 
right to demand a corresponding sum of the bank 
at some future time. The Roman law recognizes 
all this, and calls a debt a mutuum, because the 
property passes over from creditor to debtor, while 
it calls a thing merely lent, when the very thing 
lent is to be returned, a commodatum} The English 
language has but the one word loan for two very 
distinct operations, namely, for the loan of a book, 
for example, which is to be returned, and which 
may be reclaimed if the owner chance to find it, 
the Latin commodatum^ and the loan of money, or 
other measurable thing, which is to be returned in 
kind merely, which may not be reclaimed except 
with the borrower's consent, the ownership of 
which passes to him completely, the Latin mutuum. 
The same ambiguity of course inheres in the Eng- 
glish word borrow. There are two kinds of borrow- 
ing. Commercial borrowing, with which we have 
now especially to do, passes the property over com- 
pletely into the hands of the borrower, and gives 
to the lender the right to demand something of some- 
body. This right is credit. 

The duty of the debtor to pay exists entirely 
independently of the question of fact whether he 
has any thing in his possession to pay with, or not. 
A debt is a claim on a, person, not on a thing. As we 
have already seen in the first chapter, value is always 
determined by the mutual action of two persons, 

1 See Macleod's "Elements of Banking," p. 72 et seq. 1876. 



272 POLITICAL ECONOMY. 

and never resides in things separately from per- 
sons, so debt, which is one form of value, hinges 
on the free action of persons, and Political Econ- 
omy consequently has much more to do with per- 
sons and much less to do with things than has 
been commonly supposed. 

Thus the Roman law, recognizing indeed the 
legal obligation in a commodatum, in which there 
is no exchange at all, called that right a jus in re, 
a right to that very thing, but it called the right 
to which a mutuum gave birth, which was a real 
exchange, a jus in personam, that is, a right against 
the person. It was also called a jus ad rem, which 
is~ a personal right, and not a right in re. So when 
goods are sold on credit, the property in the goods 
goes completely to the buyer, and the seller takes 
instead the right or property to demand their price 
at some future time at the hands of the buyer. 
It is a right against the person of the buyer, and 
not against any specific goods or money whatever. 
But this right he can sell, if he chooses, because 
it is property. 

This peculiarity of credit explains what many 
have found it difficult to understand, namely, that 
credit in all its forms is an addition to the mass of 
other exchangeable property ; thus, as above, there 
are the goods, which are property, and there is 
besides a present right to a future payment for 
them, which is property also. This second prop- 
erty is a claim on the buyer of the goods for some 
form of property to be rendered by him in the 



CREDIT. 273 

future. In other words, a man can sell what he 
has not now in possession, provided there be a 
reasonable prospect that he will have it in pos- 
session at the time when he agrees to render it. 
The belief of the buyer that the seller will have 
it in possession and will render it to him is the 
foundation of all such credit transactions. The 
gain of such transactions is, that a new value has 
been created, a new purchasing-power, something 
in the realm of exchange additional to what ex- 
isted before. Not only does the Past contribute 
to exchange in commodities, and the Present in 
services, but the Future also in promises, which 
create rights, which create values. Exchange is 
not shut up to the past and to the present : the 
future is also open to it to a certain degree. That 
degree is marked by the limits of rational proba- 
bility. Credit is the right to demand something 
in future, and the value of the credit is the pro- 
spective value of that something, and if that some- 
thing fails to come, the value of course is gone. 

There is an actual addition to the world of val- 
ues through credit, but not an unlimited addition. 
The degree to which credit can be carried depends 
of course on public confidence ; the safe limits of 
credit can be learned only by a sagacious experi- 
ence ; the inherent dangers of credit arise from 
the uncertainties of the future ; but the property 
in credit and the propriety of credit and the po- 
tency of credit are certain. At least 90 parts out 
of every 100 of the payments and receipts in mod- 



274 POLITICAL ECONOMY. 

ern commerce are in some form of credit rather 
than in any form of money ; in this country for 
the past fifteen years almost all commercial trans- 
actions have been mediated either by pure credit 
or by credit-money; in Scotland, owing to their 
peculiar banking system and " Cash Credits " to 
be explained pretty soon, coin plays an almost 
inappreciable part in business transactions ; while 
even in England, where bank-notes for less than 
<£5 are prohibited, it is estimated that not far 
from 95 per cent of commercial business is medi- 
ated by pure credit. 

A credit-right is commonly recorded on paper. 
The paper is the evidence of the right, and not 
the right itself. These paper documents are 
termed Instruments of Credit, and may be divided 
into two classes : first. Promises to pay, and second, 
Orders to pay. We will now look at these varied 
forms of Credit, and at their practical advantages 
and disadvantages. 

1. Book Accounts. This is the simplest form 
of a promise to pay. A charge in a trader's books 
is both a current and a legal evidence that the 
person charged has received a certain service, and 
has virtually promised to render the sum charged 
as a return service. The promise is not indeed 
express, but it is implied. If the person charged 
fails to fulfil this promise, fails to meet the cred- 
itor's right to demand from him, the law, in the 
absence of any proof to make the charge suspi- 
cious, collects it, if possible, and forcibly com- 



CREDIT. 275 

pletes the exchange. The convenience of this 
form of credit is so great that it is not likely ever 
to be disused ; and as between people who deal 
much with each other is very useful, inasmuch as 
their respective book accounts are set off against 
each other in settlement, and only balances are 
required to be cancelled in money. This form of 
credit, however, unless the parties are constantly 
becoming mutually indebted, is subject to some 
disadvantages to them both. (1.) The trader 
loses in this way for a time the use of a part of 
his capital. (2.) He cannot ordinarily make this 
form of debt to him, as he can other forms, a 
means of gaining credit from others. (3.) The 
number and amount of book debts as against any 
person are less likely than other forms of debt 
to become publicly known, and consequently the 
trader is liable to trust persons beyond the point 
of their solvency and his safety. 

On the other hand, (1) the debtor is likely for 
obvious reasons to be charged a higher sum for 
each service than the cash customer would pay ; 
and (2) debts contracted in this way are apt to 
accumulate more rapidly than the debtor is well 
aware of ; and (3) there is usually less satisfaction 
in completing by payment exchanges in a mass 
than similar exchanges one by one. It is for the 
benefit of both creditor and debtor, that book 
credits should be short in time, and settlements 
frequent, since thus only the creditor realizes the 
full gains of the exchange, and the debtor keeps 



276 POLITICAL ECONOMY. 

fair his mercantile name. Doubtless, for many- 
persons in many situations the best maxim is 
" Pay as you go ; " and even for those who find 
book credits an unquestioned advantage, the max- 
im is excellent " Go and pay." 

2. Promissory Notes. These are express prom- 
ises to pay a certain sum of money to a certain 
person under certain conditions of time and inter- 
est, authenticated by the signature of the maker of 
the note, and usually delivered over to the payee. 
Such notes are issued by individuals, corporations, 
and governments. The interest on them is re- 
garded as an equivalent for the delay in payment ; 
and such credit given by one person to another is 
frequently made a means of obtaining other credit 
from another party still, as when such a note is 
discounted by a banker on the joint credit of the 
maker and payee through the payee's indorsement. 
The following is the usual form of a promissory 
note : — 

^500. Ltme, N.H., Nov. 25, 1876. 

One year after date I promise to pay D. C. ChurcJiill, or 
order, Jive Jiundred dollars with interest at seven per cent, for 
value received. 

David Turner. 

The promissory notes of governments are usually 
called in this country bonds. They pledge the 
public faith by the signature of authorized officials 
to return the principal to the lender of the money 
with interest in the mean time at a specified rate. 



CREDIT. 277 

Sometimes the time of repayment is distinctly 
specified, as was the case with all the bonds of the 
United States issued before 1865 ; at other times, 
the bonds are made payable within a date specified, 
as the so-called consols of 1865, 1867, and 1868, 
which are made payable not more than forty years 
from date ; while consols proper, like most of the 
British debt, and like the U. S. bonds authorized 
in 1870, are paj-able after a specified time at the 
option of government. The United States have 
just negotiated bonds bearing 4^ per cent interest 
payable after fifteen years, but at no particular 
time thereafter. 

These consols are so named from the " Consoli- 
dated " debt of Great Britain, which adopted for 
the convenience of the government this feature 
of non-obligation to pay the debt on a day cer- 
tain. The United States have paid of late years 
various rates of interest on their bonds, of which 
the highest was 7.30 per cent in currency, and the 
lowest 4.50 per cent in gold. It is thought that 
even the 4 per cents authorized in 1870, and paya- 
ble after thirty years, might now be negotiated at 
par, at least for the redemption of the surplus 
greenbacks. States, cities, railroads, and other 
corporations issue similar bonds. Railroad bonds 
are frequently secured by mortgages on the road 
itself and its rolling stock and other property, and 
thus become a very safe form of investment. 

3. Bank Bills. These are indeed also promissory 
notes of a corporation, but they have this pecu- 



278 POLITICAL ECONOMY. 

liarity tliat they are not on interest, and the bank 
offers as a sort of compensation for this to redeem 
the notes into coin on the demand of any holder. 
It is this proffered redemption into coin that en- 
ables the notes of a bank to circulate as money, 
while the notes of other corporations equally solid do 
not circulate as money. The privilege of banks to 
circulate their notes as money, always gained under 
governmental regulations, and sometimes under 
special governmental security, does not essentially 
alter the nature of their notes ; they are a form of 
credit ; they are promises to pay on demand ; and 
although they are commonly issued against another 
form of credit, namely, against the interest-bearing 
notes of individuals who resort to the bank for 
discounts, this does not make their nature differ- 
ent from the individual notes against which they 
exchange. It is an instance of exchanging one 
form of credit for a second which has a greater 
currency or validity than the first, and for this 
superiority of the bank credit the individual credit 
pays an interest, in other words, is discounted. 

Bank bills which are actually and always con- 
vertible into coin on demand are a very conven- 
ient form of credit, and find no difficulty in being 
accepted as a substitute to a certain extent of coin 
money. But such notes are apt to become incon- 
vertible in times of commercial pressure. All the 
banks in the United States suspended specie pay- 
ments Dec. 31, 1861, and have not resumed them 
yet. The present national bank bills are redeemed 



CREDIT. 279 

in greenbacks, if any one chooses to replace one 
piece of inconvertible paper by another. The 
greenbacks themselves are promissory notes issued 
by the national government directly, are not on 
interest, and are made legal-tender for debts as a 
sort of compensation for their inconvertibility and 
non-interest-bearing character. It may well be 
doubted, however, whether the making these notes 
a legal-tender for debts has ever added any thing 
to the value which they would have possessed as 
mere promissory notes of the government, or 
whether, if the legal-tender quality of them were 
now withdrawn, they would not continue to be as 
valuable as before. When specie payments are 
resumed by the government and by the banks, 
the national bank bills will be very acceptable to 
the people, partly on account of the attitude of the 
national government towards them, which not only 
holds as trustee securities for their redemption, but 
stands towards them also as principal pledging the 
public faith .^ 

4. Bank Deposits. A hanh is an institution for 
the creation and extinction of credits. As a mer- 
chant is a buyer and seller of commodities, so a 
banker is a buyer and seller of credits, buying some 
credits with other credits, and some credits also with 
money, and money also with credits. A banker 
needs some money in order to carry on his business, 
but the amount of his money is a mere trifle com- 
pared with the amoimt of the credits in which he 

1 Amasa Walker's Science of Wealth, page 233. 



280 POLITICAL ECONOMY. 

deals. The word hanh meant originally a mass, an 
accumulation, as we still say, a sand-hank^ and the 
hanks of a river. The word was first applied to 
commercial transactions in Venice as early as 1171, 
when the Republic was at war, and wished to raise 
a loan. The Great Council ordered that every 
citizen should contribute one per cent of his prop- 
erty, receiving five per cent interest on this, and 
that commissioners should manage the payment 
of interest to the contributors, and the transfers 
of their stock. The loan itself was called in 
Italian monte, but as the Germans at that time 
held a considerable part of Italy, the German word 
banck, which means the same as monte, came to be 
applied to it. Thus the word hank in its commer- 
cial sense meant first a public loan — the aggregate 
of the contributions of the citizens of Venice — 
and also naturally the place where the commis- 
sioners paid the interest and transferred the stock. 
The origin of the Bank of England was very 
similar to this, since the original stockholders were 
only contributors to a public loan, and the larger 
part of the capital of the Bank is invested in the 
public debt of England to this day. Gradually 
the idea of a public debt became mostty disso- 
ciated from the meaning of the word bank, while 
the other fundamental meanings still inhere in it. 
A bank is a place to which the money of other 
people is brought, as well as the banker's own ; 
and hence we speak of banks of deposit : it is a 
place in which one form of credit is exchanged for 



CEEDIT. 281 

another form ; and hence we speak of banks of 
discount : it is frequently a place where promissory- 
notes, designed to circulate as money, are issued; 
and hence we speak of banks of circulation. These 
three are the main functions of banks ; and of 
these the two former are, while the third is not, es- 
sential to banking. The central idea in banking is 
for the banker to receive his customer's money and 
credits becoming due, and to render in return for 
these a credit, that is, a right to demand from him 
an equal sum at a future time. The evidence of 
this right is entered on the banker's books, and 
thus becomes what is now called a Deposit. 

It is needful for my readers to understand dis- 
tinctly what deposits are, especially as they are 
very different in their nature from the Depositum 
of the Roman Law, and different from what the 
English word seems to mean. Depositum meant 
any thing passed over to another person for safe 
keeping, the ownership of which was not passed 
over, and which formed no element of an exchange. 
If an exchange took place, it was a mutuum ; if 
no exchange took place, the thing handed over to 
another was a depositum, which very thing was 
to be returned. Similarly, the English word de- 
posit would seem to mean the thing deposited, 
but in banking it does not. The ownership of the 
money and of the credits deposited passes over 
completely from the customer to the banker. 
The latter has the right to do just what he pleases 
with them ; only his entry of the transaction in 



282 POLITICAL ECONOMY. 

his books is a virtual promise to pay that amount 
on demand to the customer, and he must be ready 
to respond to his customer's call, whenever the 
latter demands, not his own money, but so much 
of his banker's money. The deposit, therefore, 
is not the thing deposited, but a credit purchased 
hy the things deposited. It is in this way that a 
banker buys money with credit. The customer 
has now the right to call on the banker by check 
or otherwise for such sums (not to exceed the de- 
posit in the aggregate) and at such times as may 
suit his own convenience. He has such confidence 
in the banker, and finds it so useful to have deal- 
ings with him, that he prefers a credit on him to 
the possession of the money itself. The banker 
relieves him from the care of his money and bills 
receivable, and at the same time is ready to fur- 
nish him money or credit to meet his bills payable. 
This motive on the part of bank customers is so 
practically operative, that the average deposits in 
the banks of the city of New York during the nine 
weeks of August and September, 1876, was $228,- 
735,877. 

The motive on the part of the banker to receive 
his customers' funds on these terms is the fact 
that he can safely use a large portion of these 
funds in other operations in credit profitable to 
himself, and at the same time be sure of being 
able to meet his customers' calls for money. He 
finds by experience that many of his customers 
wish always to have a balance in his hands ; that 



CREDIT. 283 

while some of them are constantly drawing on him 
for cash, others of them are as constantly deposit- 
ing with him in cash, and that consequently he can 
use with safety a part of the money he has pur- 
chased with his credit to purchase other credits 
with. 

Deposit-banking may be illuetrated by the prac- 
tice of insurance : it is abstractly possible that 
all the lives insured by a Life Insurance Company 
may terminate on a single day, in which case no 
life insurance company in the world could meet its 
obligations ; and it is also abstractly possible that 
all the houses insured in a Fire Insurance Com- 
pany might be burned in a single night, which 
would cause the collapse of the soundest company 
in the world ; and so it is abstractly possible that 
a banker might be called upon to pay all his 
deposit-liabilities at once, which would break him 
of course ; but in all these cases of abstract possi- 
bility, there is on the other hand a certainty that 
that supposition will never become a fact. Pre- 
cisely to what extent a banker may multiply his 
liabilities to pay on demand over the amount of 
cash kept on hand for that purpose must be ascer- 
tained by experience in each locality with reference 
to the general modes of doing business there. If 
the banker has at any time misjudged, he must 
sell some of the securities he has bought, or bor- 
row money on them. 

I take up the last report of the condition of the 
Adams National Bank, at North Adams, in the 



284 POLITICAL ECONOMY. 

State of Massachusetts, at the close of business, 
Oct. 2, 1876, and I find that " individual deposits 
subject to check" were 1344,482.16, while of 
" checks and other cash items," " bills of other 
banks," "silver coin," "legal-tender notes," in 
short, all the means available on that day to pay- 
checks with, aggregated but $38,299.62. That 
was a little more than 11 per cent of the imme- 
diate liabilities, and yet, I presume, it was amply 
sufficient. Each depositor felt safe, and was safe ; 
the bank was making a profitable use of the differ- 
ence between these two sums; and the gain for 
the whole community from such operations in 
credit is, that a new capital has been thereby 
created, a new purchasing-power, something in the 
world of value additional to what existed before. 
It is of the very nature of credit that a new value 
is created by it. If credit be kept within due 
limits, if its obligations be assumed with a constant 
reorard to the uncertainties as well as to the certain- 
ties of the future, it is a great blessing. But like 
all other great blessings, it is liable to be greatly 
abused. Deposit-banking, however, which is one 
of the best forms of credit, is being extended more 
and more every year, especially in all English- 
speaking communities. 

5. Bank Discounts. It is because, in accord- 
ance with the primary meaning of the word banJc^ 
bankers gather up by means of deposits into their 
own hands values that belonged to their customers, 
as well as values that belong to themselves, that 



CREDIT. 285 

they are able so largely to huy^ that is, to discount^ 
credit-paper offered to them by these same and 
other customers. The bank statement, from which 
I have quoted above, shows of "loans and dis- 
counts " $595,309.58. That was the amount of 
the promissory notes or bills of exchange bought 
by that bank at that time for the sake of the dis- 
count upon them. Discount is the difference be- 
tween the face and the price of a debt. I use the 
phrase " price of a debt " advisedly in order to 
make plain the fact that whoever gets a note or 
bill discounted at a bank sells it to the banker. It 
is not a favor done me by my banker when he dis- 
counts my note, it is a trade we make. The banker 
is not primarily a money-lender, he is a buyer and 
seller of credits. 

When I take my note indorsed or fortified by 
another name to the bank, I do not go as a men- 
dicant asking a favor, I go as a merchant offering 
to sell something. If the banker does not care 
to buy my wares, I need not take it hard of him. 
Neither has he occasion to consult any thing but 
his own business interest in the premises. Pity 
has nothing to do with it, his personal respect 
for me has nothing to do with it, it is a simple 
question whether my paper is a good thing for 
him to buy then and there. If he concludes neg- 
atively, I have no more ground of offence, than 
if he should decline to buy my horse or house. 
My motive in selling the paper is to get either 
ready money or else the right to draw checks 



286 POLITICAL ECONOMY. 

on him at my convenience; and his motive in 
buying it is to get the difference between the face 
of the note and the price at which I am willing to 
sell it. If this view of the matter, which is the 
true view, always prevailed on both sides of bank 
counters, it would be better than it is for all par- 
ties concerned. 

It is more in accordance with genuine hanking 
for the banker to pass over the price of the dis- 
counted note to his own books in the form of a 
credit due to the customer, than to pay the money 
over at once. Those who do the latter are called 
in England bill-discounters rather than bankers, 
and though most of our bankers do both, there is 
a strong tendency towards the separation of the 
two in this country also. The dependence of bank- 
ing on ordinary business is something as follows ; — 
manufacturers and wholesale merchants usually 
sell goods on time, as it is called, say three or six 
months. A debt is thus created. The manufac- 
turer or wholesaler is creditor and the jobber or 
retailer is debtor. But debts, as we now well 
know, are property ; and the creditor in this case 
wants to avail himself of his property at once for 
further production ; and so he either takes a note 
from his debtor or draws a bill upon him, and this 
piece of property is ready for sale. The banker 
buys it, that is to say, the creditor passes over to 
him the right to demand payment of this debt 
at the end of three or six months, and receives 
from the banker either money or so much of the 



CREDIT. 287 

banker's credit, that is, a deposit in the banker's 
books in the creditor's favor. For this furnishing 
the creditor with money or with a more available 
credit in lieu of his mercantile paper, the banker 
charges a percentage. This is discount, and is the 
chief source of profit in ordinary banking. When 
the mercantile paper matures, the banker gets from 
the debtor its full face. Such bankable paper 
is the following : — 



WusLiAMSTOrwn, MASS., Oct. 30, 1876. 
Three months after date I promise to pay to the order of John 
Wadhams, one thousand dollars, payable at the Adams National 
Bank, value received. 

James L. Smedley. 

John Wadhams' name on the back of this paper, 
and the requisite government stamp, make it, if 
the parties are " good," an acceptable note for dis- 
count. Two names are usually, not always, requi- 
site, since a note maybe drawn payable to one's own 
order, but paper is discounted on the strength of 
all the names upon it. The form of the paper to be 
discounted makes little difference with the banker ; 
a note is as good as a bill and a bill as good as a 
note ; his concern is with the genuineness of the 
signatures and with the financial solidity of the men 
who make them ; if he cannot discount all the 
paper offered, he gives the preference, of course, 
to regular customers and large depositors ; and 
most bankers prefer that a real business transac- 
tion should be at the bottom of the paper they 



288 POLITICAL ECONOMY. 

discount, rather than a mere accommodation be- 
tween the parties signing, but the security of the 
bankers is after all in the soundness of the men 
whose names are on the paper rather than in the 
nature of the commercial relations between them. 
Bankers are substantially dealers in credit 
rather than in money. Still, so far forth as they 
buy discountable notes and pay for them in money, 
they become money-lenders ; and they become 
such also by loaning out on call to those who have 
collateral securities to pledge, such reserve sums 
as they do not wish to invest in negotiable paper 
on account of the time involved before such paper 
matures. The following is the form of such a 
pledge : — 

^5000. Tkot, N. T., December 3, 1876. 

On demand we promise to pay to the Bank of Troy^ or order, 
Jive tJiousand dollars, for value received, with interest at the rate 
of six per cent per annum, having deposited with said bank, as 
collateral security, with authority to sell the same, at the Brokers^ 
Board, or at public or private sale, or otherwise at said bank's 
option, on the non-performance of this promise, and without 
notice, — 

12 shares N. Y. Central Sf H.R. 

40 do. Michigan Southern. 

Feanklin E. Bliss & Co. 

The rate of discount charged by bankers, or by 
bill-discounters, is a matter of the utmost impor- 
tance both to business in general and to credit in 
particular. Discount is the difference between 
the face and the price of a debt, and if this diffei-- 



CREDIT. 289 

ence be very large, it is a discouragement to busi- 
ness, fewer notes are offered for discount, deposits 
consequently decline in amount, and the banks 
become less able to discount for the very reason 
that they have discounted less. Whenever there 
is a stable measure of value, a general commercial 
confidence, and a vigorous production of all sorts, 
in any community, there will be naturally a low 
rate of discount, and banks will share in the gen- 
eral prosperity, not through a high price for every 
piece of credit, but through a low price for many 
pieces of credit, and through the ability to use 
profitably the large deposits that are natural in 
such circumstances. "When, however, there is 
commercial pressure, and a consequent strong de- 
mand for money or credit, a rise in the rate of dis- 
count is both proper and useful. Banks have a 
right to get all that they can for their services in 
an open market, and it is best for the public that 
they use this right, for then the services are sure 
to be rendered to those who most need them. 
The only practical way to find out who want 
money or credit the most is to find out who will 
pay the most for its use. A rising rate of discount 
in time of money pressure is somewhat like the 
brakes upon the railroad train. It manages the 
momentum. It graduates the supply to the de- 
mand. It tends to leave something to those most 
desperately in need. 

It is a dictate alike of common sense and of 
copious experience that, in times of commercial 



290 POLITICAL ECONOMY. 

panic, strong banks, instead of refusing to discount 
altogether, as lias often been done, ought to dis- 
count very freely indeed ; but, at the same time, 
they ought to raise the rate of discount very con- 
siderably, so as to shut off those who can forego 
the use of the money or credit, and leave the more 
to those who want it the more. The British govern- 
ment has three times allowed the Bank of Eng- 
land to violate its charter of 1844, and to issue 
more bills in the way of buying therewith commer- 
cial paper than the charter permits, but it has 
coupled its permission with the condition that the 
Bank should not discount any paper at less than 
ten jyer cent. The permission on the one hand was 
wise and timely, for in each instance it dissipated 
a great panic in the course of a few hours, and it 
is plain to reason that free discounting on the part 
of those able to offer it in times of pressure tends 
powerfully to bring back confidence again ; and 
so, on the other hand, was the requirement wise of 
a sharp rise in the rate of discount, so as to dis- 
criminate in favor of those whose needs were the 
greatest. 

The Bank of England, as the principal bank in 
Great Britain, and as closely connected with the 
government, acts, and is designed to act, as a bank 
of support to the private and public credit in that 
country. Accordingly, while it does a regular 
business as a bank of deposits and discounts, it 
means to keep its rate of discount slightly above 
the rate demanded by private bankers and bill- 



CREDIT. 291 

discounters in London, so as not to come into 
competition with them much in their ordinary 
business, and so as to act as a bank of support to 
them and all others in case of commercial pressure. 
All banks have just about so much credit to sell, 
and no more ; most banks sell in ordinary times 
about all the credit they have ; if the Bank of 
England did this, it would be useless in time of 
panic as a great national bank of support ; accord- 
ingly, in ordinary times, it keeps its rate of dis- 
count above the market-rate, and is thus prepared 
to do good service in selling its reserve credit when 
the credit of the bankers below is exhausted. 
When their discount-rate rises, its rate rises a little 
more ; and when they are at the end of their rope, 
there is usually an abundance of slack rope still in 
the great institution above. 

As gold can be drawn out of the Bank of Eng- 
land by the checks of depositors as well as by the 
presentation of notes for redemption, the rate of 
discount becomes a matter of prime importance in 
the practical management of the bank. Whoever 
gets a note or bill discounted there, has the right 
to draw out the proceeds at will by check either 
in bank-notes, or coin, at his option. The whole 
line of deposits is a line of liabilities to pay out 
gold, if the depositors demand it. Accordingly, 
as these deposits come largely through discounts, 
whenever there is a strong tendency to draw out 
gold so as to weaken the reserves of the bank, 
the directors have an effectual remedy in raising 



292 POLITICAL ECONOMY. 

the rate of discount. Of course, a rise in the rate 
of discount does not affect liabilities already in- 
curred ; but it tends to lessen the liabilities of the 
immediate future ; because, the higher the price the 
bank charges for its credit, the fewer, so far forth, 
will be its customers, and the smaller its line of de- 
posits. Debts are property ; and those who have 
debts to sell do not like a high rate of discount, 
which is only another phrase to describe a low 
price for their property; and, therefore, higher 
rates of discount drive off from the bank some of 
the sellers of bills of exchange and promissory 
notes, and thus tend to stop a continuous drain 
of gold from its vaults. The Bank of England is 
managed throughout by so simple a matter as the 
turning back and forth of this magic screw of 
discount. If the rate is put too high, the bank 
loses business, and consequently profits ; if the 
rates are kept too low, the reserves are endangered 
from a drain of gold, which depositors may put 
to a profitable use either at home or abroad. 

And this leads me to say here, what we shall 
understand better when we have studied the 
course and par of international exchanges, that 
whenever the foreign exchanges turn for any con- 
siderable time against London, it is a sign for the 
directors of the Bank of England to raise their 
rate of discount ; for, otherwise, the sums needed 
to pay off the balances of foreign trade would nat- 
urally be drawn from the reserves of the bank. 

Also, whenever the rates of discount are decid- 



CREDIT. 293 

edly higher in the neighboring countries than they 
are in London, it is usual for the directors of the 
Bank of England to raise their own rates ; for, 
otherwise, gold would certainly be drawn from 
their vaults, and sent to Paris, Antwerp, Ham- 
burg, or Frankfort, as the case may be, in order to 
buy therewith good paper in those markets where 
the rates of discount are higher. Gold goes in 
one night from London to the continent. To buy 
notes of hand or bills of exchange at high rates 
of discount with gold, is the same thing as loan- 
ing out gold at a high rate of interest ; and my 
readers perceive, accordingly, that it is not safe 
for London to maintain for any great length of 
time decidedly lower rates of discount than pre- 
vail on the continent. 

This one fact illustrates on the one hand how 
the world is more and more becoming one in its 
commercial interests and methods, and on the 
other hand how potent an instrument over both 
domestic and foreign exchanges is a rising or fall- 
ing rate of bank discount. London is the best 
place to observe the potency of this instrument, 
because London is the commercial centre of the 
world ; but the Bank of France, and all the other 
great European banks have learned from the Bank 
of England how to use the rate of discount. In- 
deed, in regulating wisely the rate of discount 
from time to time in accordance with the state 
of domestic and foreign exchanges consists the art 
of banking ; and, in the light of this, appears more 



294 POLITICAL ECONOMY. 

clearly than ever the anomaly and the mischief of 
usury laws. 

So far we have treated of promises to pay, and 
these proceed from the debtor : we come now to 
speak of four other forms of credit, which are vir- 
tually orders to pay, and these proceed from the 
creditor. 

6. Checks. A check is a written order on a 
banker, or other person, directing him to pay to 
the person named in the check, or to his order, a 
certain sum of money. Of course, the drawer of 
the check is creditor with reference to the banker 
on whom it is drav/n, but is at the same time 
debtor with reference to the person in whose favor 
it is drawn. Commonly, a check is drawn against 
a deposit, which, as we have seen, is a debt of the 
banker to the depositor. The depositor realizes 
this debt through a check, or series of checks. 
When the person drawing the check and the 
person receiving it keep deposits with the same 
banker, there is no need of any money passing at 
all in the premises, the sum being merely trans- 
ferred in the banker's books from the credit of the 
drawer to that of the receiver. 

The introduction of banks has largely changed 
the old methods of doing business. Men have 
found that it is safer and more convenient to de- 
posit their money and bills becoming due with a 
banker, and to make their payments by checks 
upon him, than to keep their own money and to 
make their payments directly. The banker is will- 



CREDIT. 295 

ing to do this business for nothing, and sometimes 
to allow the depositors a low rate of interest on bal- 
ances left in his hands, in consideration of the privi- 
lege he enjoys of loaning out such proportion of the 
sums as he deems safe to other parties at a higher 
rate of interest. The custom of depositing one's 
funds with a banker, and the consequent use of 
checks, is widening constantly in commercial 
coimtries, especially in English-speaking countries, 
among all classes of people. It is difficult to say 
whether the advantages of the system are greater 
to the banker or to the depositor ; both alike profit 
by it, as well as the community at large ; and noth- 
ing illustrates better the nature and benefits of 
credit. 

There has lately been instituted in England 
what is called the Check Bank, which is designed 
to bring the benefits of the check-system more 
easily to all classes of the people, even down to 
their small, every-day payments.^ It is a Stock 
Company, which has entered into relations with 
nearly all the banks and bankers of the United 
Kingdom, and with very many colonial and foreign 
banks, by which check books are furnished for 
sale by the Check Bank through these associated 
banks which also agree to cash the checks, every 
check in which books indicates by printed and 
indelible perforated notices upon the forms what 
the utmost sum is against which that check can 
be drawn, and the aggregate of these sums is the 

1 Jevons' Money and the Mechanism of Exchange, p. 290 et seq. 



296 POLITICAL ECONOMY. 

price of tlie book less 1^ penny for eacli check 
in it, of which the penny is for the government 
stamp, and the one-fifth of a penny for the profits 
of the Check Bank. It is a great security against 
fraud when every check bears on its face the ut- 
most amount for which it can be drawn. If the 
checks are actually drawn for less sums, the bank 
will give additional checks to the amount of the 
balance ; or the persons to whom the}^ are paid out 
may give back the change, if drawn for the full 
sum, and the debt thus paid be less than that. 

All money received for check books is left in 
the hands of the bankers through whom they 
are issued, or transferred to other bankers if 
needed by them to meet the checks presented. 
The checks are payable by any of the associated 
banks or bankers. An interest is paid to the 
Check Bank on the balance of deposits held by 
these banks, and this, together with one-fifth of a 
penny for each check, is the only source of profit 
to the Check Bank. The advantage of these 
checks over the ordinary bank-check is very obvi- 
ous. They have a kind of generalized character. 
They are very convenient for remittance by letter, 
since they will be cashed by almost any banker, 
and are cheaper than Post Office orders. They 
yield a certain revenue to government — a penny 
apiece. Each check carries its whole history along 
with it. 

The banks keep an account with the Check 
Bank, but are not obliged to keep a separate 



CREDIT. 297 

account with the purcliasers of check books, 
which is a great relief. Anybody who can -write 
can use these books to advantage, they are safer 
than so much money, there is no difficulty in 
making payments in shopping or in paying wages 
by means of them. The checks are drawn to 
order and crossed, and are dangerous to meddle 
with in a fraudulent intent. The Check Bank 
thus extends the use of checks to a multitude of 
small transactions, and relieves the other banks 
from what would otherwise be a great deal of 
troublesome accounting. The longer these checks 
remain out before presentation the more profitable 
to the Check Bank, and their average life has been 
heretofore about ten days. 

Now, if all checks had to be carried separately 
to a banker for payment, it would take much 
time and involve much trouble ; but by a simple 
arrangement called a Clearing-House, such time and 
trouble are spared, and checks are virtually paid 
off without the intervention of much money by 
setting them off one against another. The London 
Bankers' Clearing-House was established in 1775 ; 
in 1864, the Bank of England was admitted to it, 
and since then, the clearing-house itself, and all 
the bankers and firms u"sing it, have accounts with 
the Bank of England, and the balances formerly 
settled by money are now settled by simple bank 
transfers of account in the books of that great 
Bank without the use of one penny of money. 

The average daily clearings at the London Bank- 



298 POLITICAL ECONOMY. 

ers' Clearing-House amount to about X 20,000,000, 
which if paid in gold coin would weigh about 157 
tons, and would require about eighty horses to 
carry it, and if paid in silver would weigh more 
than 2,500 tons. The annual clearings at that 
establishment are now about ,£6,000,000,000, and 
there are besides many other clearing-houses in 
Great Britain. The New York clearing-house 
was established in 1853, and its clearings, though 
formerly greater, are now somewhat inferior in 
amount to those of the London establishment. 

I will describe, in general, the New York clear- 
ings, premising, that the principle is the same, 
though the details may be different, in all other 
clearing-houses. Business-men in New York usual- 
ly pass in to their bankers as a deposit all the 
checks they have received in the course of a busi- 
ness day. They might, by indorsement, if they 
chose, use these checks to make their own pay- 
ments with, but it is now rather the custom in 
business towns for each man to draw his own check 
to make payments with, and to pass in the checks 
he receives to his banker. There are 59 clearing- 
banks in New York city. Each of these banks 
sorts out every day the checks it has received 
drawn on each of the other banks into separate 
parcels ready for the clearing. Each bank has, 
therefore, to deliver 58 parcels, which represent 
the property of that bank, and are a claim upon 
the other banks, and to receive 58 parcels, which 
represent the property of other banks, and are a 
claim upon it. 



CREDIT. 299 

Before 10 o'clock in the morning, 59 messen- 
gers, having each 58 parcels to deliver, appear at 
the clearing-house, each reporting at once to the 
Manager for record the amount of exchange he 
has brought, which is entered of course as credit 
to his bank, and then all take their positions in 
order in front of the 59 desks, behind which sit 59 
clerks, each representing one of the banks.^ Each 
messenger stands opposite the desk of his own 
bank, with his parcels already arranged in the 
exact order of the bank-desks before him. Each 
clerk inside his desk has a sheet containing the 
names of all the banks arranged in the same order, 
with the amounts carried out which his messenger 
has just brought. These are entered in his credit- 
column. Each messenger carries also a slip ready 
to be delivered with each parcel to each clerk, on 
which is entered the amount of exchange he now 
brings to each bank. The amount brought to each 
bank is dehit to that bank, just as the amount 
brought hy each bank is credit to that bank. 

At a given signal from the manager, each mes- 
senger steps forward to the next desk, delivers his 
parcel to the clerk behind it, and also the slip that 
goes with it, which latter the clerk signs with his 
initials and hands back to the messenger as his 
voucher for the delivery ; and then each advances 
to the next desk — the whole cue of messengers 
moving in order — at which precisely the same 

1 I witnessed a clearing in May, 1876, and describe the process 
partly from observation. 



300 POLITICAL ECONOMY. 

things take place as before ; and so on, nntil the 
circuit of the room is made, and each has reached 
the starting-point opposite the desk of his own 
bank, having delivered to each bank the exchange 
he had for that bank, and having taken a receipt 
for each delivery. This process takes about ten 
minutes ; at the end of which time each clerk, 
who had on his sheet to start with the credit due 
his bank, has now in his possession the data to 
calculate the delit of his bank. He enters on his 
sheet the amounts of exchange delivered to him ; 
and the difference between the total amount re- 
ceived and the total amount brought by his bank is 
the balance due to or from the clearing-house as 
to that bank. 

All the clerks then report to the Manager the 
amounts they have received ; and, as they re- 
ported on first entering the room the amounts 
their messengers brought, if the two columns on 
the Manager's proof-sheet add up alike, no mis- 
take has been made, and the general clearing is 
over. The clerks are allowed thirty-five minutes 
after the delivery of the exchanges to enter, re- 
port and prove their work. For any errors dis- 
covered after that time, fines are imposed, payable 
by the banks whose clerks have erred. All the 
banks receive a clearing-house ticket of debit or 
credit, and the debit ones are required to pay 
the Manager in legal-tenders before half-past one 
o'clock ; and immediately after that hour the 
credit banks are paid respectively the sums due 



CREDIT. 301 

to tliem. The largest sum ever cleared in New 
York in one day was on Nov. 17, 1868, 1206,034,- 
920.51 ; and the smallest sum on Oct. 30, of the 
panic year 1857, 18,357,394.82. 

7. Bills of Exchange. A hill of exchange is a 
written instrument designed to secure the payment 
of a distant debt without the trayismission of money. 
Thus, suppose A in Boston owes B in New York 
$1,000, and another party, C in New York, owes 
A in Boston a like sum ; it is not necessary that 
A should send the money to B to cancel his debt, 
and C send the money to A for a like purpose ; 
the two debts by means of a bill of exchange are 
set off against each other, and both transactions 
are closed without sending any money from one 
city to the other. A draws a bill upon C, direct- 
ing him to pay B $1,000, and sends the bill to B, 
who, if the bill be drawn on sight, presents it to 
C for payment ; if on time, presents it to C for 
acceptance, who then pays it at maturity. An 
acceptance is written upon the face of a bill, 
as an indorsement is upon its back. Checks are 
really bills of exchange with some differing legal 
incidents, and a certified check is an accepted bill 
of exchange, — certification being an acknowledg- 
ment of the debt, against which the check is 
drawn, written on its face. A is called the drawer 
of the bill, C the drawee until he has accepted, 
and then the acceptor^ and B is the payee. 

It is not often that the same person, as A, hap- 
pens to owe to another person in a distant place, 



302 POLITICAL ECONOMY. 

as B, exactly the same sum as is owed him in that 
place by a third person, as C ; but by two bills 
of exchange, one drawn by each creditor on his 
own debtor, and then set off against the other, the 
same advantage is gained as if it always happened 
so. Nearly all these bills come into banks in the 
way of ordinary business, either for discount or 
collection, and are adjusted through bank balances. . 
The following is the form of an inland bill of ex- 
change : — 

$3,000. Thetfokd, Vt., Nov. 29, 1876. 

Four months after date pay to the order of Edward G. Smed- 
ley three thousand dollars, value received, and charge the same 
to account of John Bascom & Co. 

To B. E. Perry, Boston, Mass. 

Smedley indorses on the back, Perry accepts 
on the face, and this bill is negotiable. Sometimes 
bills are drawn to the order of "ourselves," in 
which case the drawers also indorse, and the bill 
is sold on the joint credit of the drawer and ac- 
ceptor. Bills may bear an indorsement specifying 
to whom payment is to be made, or an indorse- 
ment in blank so-called, by which is meant that 
the payee or subsequent holder merely writes his 
own name upon the bill, which is equivalent to 
making it payable to bearer. Bills of exchange 
are either payable at sight, or after an interval 
fixed in the bill itself; they are either real, or 
accommodation, bills ; and they are either inland, 
or foreign, bills. 

Bills having some time to run before maturity 



CREDIT. 303 

are usually discounted by bankers, or other money- 
lenders, that is to say, the payee sells the bill to 
them, receiving the face less interest for the time 
it has still to run ; and the bill thus serves the 
purpose of enabling a debt due from one person to 
become the means of obtaining credit from another 
person. 

What are called accommodation bills do not 
differ in form, or in any other legal respect, from 
what are called real bills. The only difference is, 
that a real bill is drawn on an actual debt owed 
by the drawee to the drawer, while an accommo- 
dation bill is drawn on what the drawee agrees 
shall he regarded as a debt from him to the drawer; 
in other words, a real bill is drawn on the strength 
of a past transaction, namely, the actual sale of 
some value by the drawer to the drawee, while an 
accommodation bill is drawn on the strength of 
a future transaction, namely, the promise of ths 
drawee to act in relation to that bill as if he owed 
the drawer. There has been an unreasoning pre- 
judice against accommodation bills, as if they were 
a kind of counterfeit coin, and as if the real bill 
were safer because property has previously passed 
from drawer to drawee. The fact that property 
has passed is no security for the bill drawn on 
the debt thereby incurred, because the bill gives 
no claim to that property, which is already beyond 
reach, but the bill itself is a piece of pure credit 
based on the good faith of all the names upon it. 
In point of security there is no distinction at all 



304 POLITICAL ECONOMY. 

between real and accommodation bills, since they 
equally constitute a charge upon the whole estates 
of the signers ; nevertheless, bankers properly 
prefer to buy real bills, because they thus more 
directly assist in the transfer of commodities from 
place to place, and especially because real bills 
cannot exceed in number the transactions already 
actually had, while accommodation bills may be 
multiplied indefinitely for purposes of speculation. 
Some accommodation bills are just as good as any 
real bills can be ; — it depends upon the names, 
and the kind of business done by the wearers of 
the names. 

Foreign bills of exchange mediate sales between 
countries, just as inland bills do between different 
places in the same country, without much trans- 
mission of money either way. They are a won- 
derful sign of civilization. New York dealers are 
constantly sending goods to London, and London 
dealers are constantly sending goods to New York ; 
for what they send to London, New York firms 
draw bills on the parties to whom the goods are 
consigned ; and, similarly, for what they send to 
New York, London firms draw bills on New York 
parties. Thus bills on London, that is, on Eng- 
lish debtors, can always be had in New York by 
those who have made purchases in London and 
wish to remit value to liquidate those purchases ; 
and bills on New York, that is, on American debt- 
ors, can always be had in London by those who 
have made purchases in New York and wish to 
remit for them. 



CREDIT. 305 

A class of dealers have sprung up in New York 
and London, and in all other commercial towns, 
who find it a profitable business to buy up these ^ 
bills from those who can draw them, and sell them 
again to those who wish to remit them. These 
dealers in foreign bills of exchange are hankers^ 
inasmuch as they buy and sell credits ; and it is 
very plam that the law of supply and demand 
applies to these bills in any place where they are 
an article of traffic. If more bills than usual 
are drawn and offered for sale in New York, 
other things being as before, they will fetch a 
less price, and vice versa; and my readers can 
understand very easily what is meant by the par 
of international exchanges. 

If all the bills drawn in New York on London are 
readily bought at their face value (ininus interest for 
the time they have to run) by those who wish to 
make remittances to London, and at the same time 
bills drawn in London on New York are taken up 
at the same rate by those making remittances to 
New York, it shows a substantial equality in the 
mutual debts of those places, and the exchange is 
said to be at par. This implies, of course, that 
there is a well-understood relation between the 
value of the pound sterling and the dollar, which 
is, so long as both coinages remain unchanged, 
$4.8665 to <£!. But it rarely happens that ex- 
change between New York and London is exact- 
ly at par ; and exchange is said to be in favor of 
New York, and against London whenever bills on 



306 POLITICAL ECONOMY. 

London will not bring in New York their full par 
value less interest. This is the case at present. 

If New York has sold more value to London, or 
to parties (no matter where they live) who allow 
New York to draw on London for their pay, than 
London has sold to New York, or to parties (no 
matter where they live) who must remit the pay 
from New York, it is plain that more bills on 
London mil be offered in New York than will be 
readily taken up at full value by those who have 
remittances to make to London. The competition 
among the sellers of bills will lower their price, 
since there is not an equal eagerness among the 
buyers of bills ; in other words, the swp'ply is 
greater than the demand^ and the price goes down 
of course. New York can pay what debts she has 
to London easily, for she can buy good bills below 
par. Exchange is in her favor. More value is 
due to her than from her to London. For the 
same reason that this is so, bills on New York in 
London will be above par. London cannot pay 
the debts she has contracted to New York so easily. 
Exchange is against her. But now notice what 
follows from this. 

Because bills of exchange on New York are now 
worth more than par in London, say 101, there is 
a direct encouragement to London parties to send 
values to New York, because on every cargo sent 
they can draw bills which can be sold at a premium, 
that is, above par ; and at the same time, there is 
a direct discouragement to New York to send more 



CEEDIT. 307 

values to London, because the bills drawn on the 
values sent will only bring, say 99. The place, in 
whose favor the exchange is, exports with lessened 
profits to the place against which tlie exchange has 
turned ; and the unfortunate party, which has sold 
less in the past, is stimulated, in very consequence 
of that, to sell more in the present ; and the fortu- 
nate party, which has sold more in the past, is 
unfortunate in this, that it cannot sell any thing 
at present for its fall value. These simple facts 
tend powerfully to bring the exchanges back to 
par again. So every thing tends to right itself 
in this wondrous world of values. 

Here is a magnificently comprehensive law, 
which vindicates Nature's right to reign in the 
domain of exchange. If, however, in spite of 
this law, the exchange continues to be obstinately 
against a country, it only shows, provided the 
money of that country be sound, that it has 
incurred credit-obligations beyond the power of 
its ordinary exports to cancel, and that there 
must be an export of gold to pay off the old 
scores, and a more prudent method of purchas- 
ing in the future. Gold goes in this way from 
one country to another to pay off balances, which 
ordinary bills can no longer adjust ; but, it is im- 
portant to notice, that if for any reason the differ- 
ence in the exchanges be sufficient to cover the 
cost of the transmission of gold, gold will go freely 
from the country against which the exchanges 
have turned, and bills will be drawn upon that, as 



308 POLITICAL ECOKOMY. 

upon common merchandise, and sold at a premium. 
A decidedly higher rate of discount in the neigh- 
boring countries will carry out gold ; a decidedly 
adverse exchange will carry out gold ; and other 
exports will be helped to go out from such a coun- 
try by means of the premium on the bills drawn 
upon such exports. 

Bills drawn by and upon well-known bankers 
have naturally a better credit than ordinary com- 
mercial bills, the names upon which are less widely 
known. Accordingly, this business of foreign 
exchange is falling more and more into the hands 
of bankers in this way : — Persons sending cargoes 
of cotton, say to Liverpool, arrange through their 
bankers to have the proceeds put to their bankers' 
credit in London, and then the bankers draw bills 
on London, which will bring a higher price in New 
York than a mere commercial bill will bring, be- 
cause a remitter may prefer a bill of higher credit 
even though it cost him more, since he can buy 
goods abroad with such a bill with less question 
than with 'a commercial bill. Commercial bills are 
still bought and sold in every commercial town, but 
bankers' bills are more or less taking their place ; 
and there is a strong tendency to make London 
the settling-place of the world's transactions by 
means of bills drawn on and by London bankers, 
which has come about partly from the commercial 
prominence of England, partly from excellent 
banking customs there, but mainly because an 
immense mass of cheap loanable capital exists 



CREDIT. 309 

there. Interest is at least two per cent less in 
London than in New York, so that a trader who 
can get credit there, that is, leave to draw on a 
banker, virtually borrows capital at London rates 
of interest, and makes his transactions to that 
extent more profitable. Instead of first depositing 
money in London, he gets a credit there, and after- 
ward makes remittances to keep the banker good 
who accepts and pays his bills. 

8. Circular Letters of Credit. These are of 
great convenience to travellers. They are issued 
by bankers of world-wide repute to their corre- 
spondents in foreign countries, directing each of 
them to pay to the person named in the letter 
such sum as may suit his convenience at that time 
and place, the aggregate of which sums is not to 
exceed the limit mentioned in the letter itself. 
As each sum paid is recorded on the letter by the 
banker paying, there is no danger of overdrawing. 
To carry such a letter abroad is much better than 
to carry the money ; because, in the first place, 
money can be had by means of it in all the princi- 
pal cities of the world in just such sums as are 
needed ; in the second place, persons buying such 
credit have to pay for no more of it than they 
actually use ; in the third place, the letter is avail- 
able for no one else than the person named in it, 
whose signature authenticates it, and so is not 
liable to be stolen, though it may be lost ; and in 
the fourth place, as respects parties in good credit, 
the money need not be deposited with the banker 
at home any faster than it is called for abroad. 



310 POLITICAL ECONOMY. 

9. Cash Credits. This form of credit was in- 
vented in Scotland about one hundred and fifty 
years ago, and, so far as I know, its operations are 
still confined to that country. The Scottish banks 
have several peculiarities as compared with those 
of England and the United States. In the first 
place, there are but 11 independent banks in all 
Scotland, but each of these has on the average 78 
branches, the one having the fewest has 19 and 
the one having the most has 125 branches, so that 
almost every village in the country is provided 
with banking facilities, and these under circum- 
stances most favorable to the credit of the banks 
and the profit of the people, because branch banks 
have all the credit of the central institution to fall 
back upon and are subject to constant supervision 
and rectification if in any respect they go astray. 
This ramification of a single bank into various 
parts of the country, the smallness of the country 
itself, and the national characteristic of the Scotch 
hinted at and encouraged in the lines of Burns, — 

*' But keek through every ither man 
Wi' sharpened, sly inspection," 

are favorable to a minute knowledge of the 
character and credit of individuals on the part 
of any bank. 

In the second place, the Scottish banks, but 
not the English, are allowed to issue .£1 notes, 
and these are in universal use among the people, 
and the banks that sell Cash Credits pay out for 



CREDIT. 311 

this purpose their own notes exclusively. In the 
third place, such is the organization of the Scotch 
banks, and such has always been their excellent 
management, that many of them have at all times 
a surplus of credit to sell, that is, when they have 
discounted all the good paper offered, they still 
have resources for further operations in credit. 

Under these circumstances they have fully de- 
veloped the system of Cash Credits, which allows 
any man of good character, who has a reasonable 
prospect of succeeding in business, and who can 
find two or three friends of good standing to 
vouch in general for his accounts, to open an 
account with the bank without any previous de- 
posit, to draw out and pay in on that account 
just as if he had deposits, and charges him interest 
only on the balance to his debit. As this interest is 
less than the discount would be for an account of 
equal size, cash credits are less profitable to the 
banks than the discounting of paper, but more 
profitable than to let any of their funds lie idle ; 
and at the same time, the system affords help to 
every deserving young man who needs it. Multi- 
tudes of Scotchmen have risen by means of so 
slight a stepping-stone as this to the high places 
of opulence. 

The banks usually advance in this way but a 
moderate sum, say from £100 to £1,000, but as 
this is not a dead loan, but a living account con- 
stantly operated upon by paying in and draw- 
ing out, instances are given of operations to the 



312 POLITICAL ECONOMY. 

amount of £50,000 in a single week on the strength 
of a cash credit of £1,000. The persons who 
guarantee a young man's account are called cau- 
tioners in the Scotch law, and are of course 
interested in his success, are ready to assist him 
with their counsel, keep a watchful eye on his 
business proceedings, have the right to inspect his 
bank account at all times, and to stop it at any 
time if any thing is wrong ; and it scarcely needs 
to be added, that, under all these circumstances 
taken together, the national custom of cash credits 
has been a great conservator of character, and a 
quick stimulator of prosperity, in Scotland. 

These nine are the principal forms of the instru- 
ments of credit ; and we will now notice that 
credits are practically extinguished in three ways ; 
— first, by a payment of coin-money, which puts 
a commodity in the place of the credit, and of 
course extinguishes the right to demand ; second, 
by renewal, that is, taking a new credit in lieu of 
the old one, as when I accept a check in payment 
of a debt ; and third, and chiefly, by set-off, as in 
book-accounts and at the clearing-house, because 
a mutual release from debt is a mutual payment 
of debt. Credit, in most cases, is like a circle, 
which returns perpetually into itself. 

The advantages of credit have been, perhaps, 
sufficiently indicated already. They may be 
classified under four general heads : — First, credit 
usually passes existing capital from hands which 
are less to hands which are more able to use it pro- 



CREDIT. 313 

ductively. Those best able to make capital tell 
are generally those most desn^ous to obtain it, and 
frequently those best able to offer good security 
for it. Credit is the channel through which capi- 
tal goes from the hands of the idle, the aged, 
those indisposed and those incompetent to use it 
productively, into competently productive hands. 
Joint-stock companies gather up the driblets of 
unoccupied capital here and there, and, combining 
them, enter upon paths of profitable production, 
which individual enterprise cannot tread. Sav- 
ings-banks receive the surplus earnings of the 
poor, and, paying a fair interest on each deposit, 
loan out the aggregate at a higher rate on choice 
securities, thus stimulating frugality in a wide 
circle of depositors, and also aiding production by 
opportune loans to the best class of borrowers. 
Sound life-insurance companies illustrate the bene- 
fits of credit in a gratifying light, and, by elevat- 
ing and widening the views of men, tend to make 
them better producers and better citizens. Banks, 
as well in their capital stock, as in their deposits 
and discounts, operate to put capital where it will 
do the most good. 

Second, credit affords amazing facilities for ad- 
justing the accounts of the loorld's commerce. Bills 
of exchange both inland and foreign, checks, the 
clearing-house, bankers' drafts, and travellers' 
credits, all facilitate settlements. The great prin- 
ciple of settlement is set-off, or a mutual release 
from debts ; but also, the creation of one debt is 



314 POLITICAL ECOKOMY. 

often at the same moment the extinction of an- 
other. 

Third, credit dispenses with the use of a great 
deal of expensive metallic money. Some metallic 
money there must always be, in order to furnish 
the denominations of value, in order to afford the 
basis of credit, and in order to settle up the bal- 
ances of credit-exchanges ; but credit can take 
the place of money to an extent never yet real- 
ized, even in Scotland ; and this use and extension 
of credit are economizing of expense ; less coin is 
needful ; London settlements, for example, are 
made first at the clearing-house, and then the bal- 
ances cleared at the Bank of England without 
any money at all. 

Fourth, credit creates a new capital. It cannot 
do this indefinitely, but it does it actually. 
Besides all the commodities in the world, and all 
the personal services ready to be exchanged, there 
is a body of credits with which purchases can be 
made. Besides the past, and the present, the 
future can be made to a limited degree to pay 
tribute to exchanges. 

On the other hand, there are some disadvan- 
tages connected with the use of credit. Some- 
times by means of credit, particularly book- 
accounts, capital steals out of the hands of the 
enterprising and productive citizen into the hands 
of indolent and unproductive consumers. This 
is a loss not only to the dealer but also to the 
community, inasmuch as bad debts in the accounts 



CREDIT. 315 

of some customers have to be made up for in part 
by more onerous terms in the accounts of other 
customers. Long credits are not to be commend- 
ed except as given to governments, certain rail- 
roads, and possibly some other parties, for whom 
the future is not likely to have reverses in store. 
For, it must always be remembered, that there are 
more uncertainties connected with credits than 
with material commodities and personal services, 
since the future is more indeterminable than the 
past and present. In a different sense from that 
in which he has used them, we may quote the 
lines of the good Whittier ; — 

•' We know not what the future hath 
Of marvel or surprise. " 

Also, credits may be used in such manner as to 
bring about commercial crises. It is still a dis- 
puted point, whether the use of pure credits, not 
to speak now of credit-money, tends to raise the 
scale of general prices. Whether it does so or 
not depends on the further question, whether the 
demand for things offered for sale is more inten- 
sified by credit facilities in buying them than their 
suppl}!' is increased by credit facilities in produ- 
cing them. We may be absolutely sure that the 
law of supply and demand governs all prices. 
Demand is the desire to purchase coupled with the 
power to purchase. Credit affords such facilities 
for buying, that it is certain more is bought by 
ahnost everybody than would be bought under 



316 POLITICAL ECONOMY. 

an absolute system of cash payments. It is also 
certain that salable things of every kind are 
brought more easily and abundantly to the market 
through the facilities credit gives to production. 

Whether demand or supply be the more stimu- 
lated by credit is a delicate and difficult question, 
and on its solution depends the inquiry whether 
general prices are raised by credit ; but however 
those questions may be decided, it is pretty clear 
that commercial crises have their rise in disordered 
credits, and that the collapse is caused either by 
the failure of certain parties to meet their matured 
credit-paper with immediate settlement, or by an 
apprehension of such failure. In times of confi- 
dence and prosperity various forms of credit-paper 
are multiplied; in times of over-confidence and 
speculation the volume of such paper is unduly 
increased, and the character of some of it insuffi- 
ciently scrutinized ; then come the beginnings of 
distrust ; then follows a loss of confidence ; credit 
is much less freely given than before ; some par- 
ties whose debts are maturing find it impossible to 
provide an acceptable set-off, or payments in cash ; 
their failure may precipitate the failure of others 
their creditors, at any rate, it causes consternation 
and a further suspension of credit; next comes 
the general crash, unless some central power, like 
the Bank of England, can offer unbounded credit 
to all solvent parties ; and then succeeds a period 
of stagnation and distress. Such crises, more or 
less intensified however by the action of credit- 



CREDIT. 317 

money^ swept over this country in 1837, again in 
1857, and again in 1873. 

"We conclude, then, that Credit is good ; but it 
requires general caution and strong control to keep 
it from becoming evil. 



318 POLITICAL ECONOMY. 



CHAPTER VI. 



TAXATION". 



We have now reached the last stage in our 
journey. It will be the shortest of all. If the 
road seem dry and dusty to m}^ fellow-travellers, 
I still bespeak their patience, for the end of it is 
now at hand. I believe that the journey, when 
completed, will not have been found profitless, 
although it may have lacked of amusement and 
pleasure by the way. 

It might seem at first sight as if Taxation were 
not properly a topic of Political Economy, inas- 
much as that is a field of voluntary action, while 
it is scarcely voluntary with the individual citizen 
or subject whether he pay taxes or not. But, on 
a closer view, it becomes apparent, that the people 
do really tax themselves, either directly or indi- 
rectly ; that they organize governments primarily 
for the security of person and property ; that the 
origin and increase of property depend upon the 
exercise of the rights of exchange, which govern- 
ment is instituted in part to make secure; that 
taxes are really a return for services rendered, 



TAXATION. 319 

and may be justified on the strict principles of 
excliange ; that government, while it has other 
important functions, renders, by its laws, courts, 
and officers, by the force which it is at all times 
ready to exert in behalf of any citizen or the 
whole society when threatened with evil in per- 
son or property, services on the principle of the 
division of labor, one set of agents devoting them- 
selves to that work ; and that the practical rules 
of taxation at any rate, whether the fundamental 
reasons for it or not, must be found within the 
purview of our science. 

We inquire, accordingly, into the Soue.ce, out 
of which taxes must be paid ; into the Modes, in 
accordance with which taxes are actually raised ; 
and into the guiding Principles, under which all 
taxes ought to be levied. 

It is very clear, in the first place, that all taxes 
have to be paid out of the gains of exchanges. In- 
deed, there is no other possible source out of 
which they can be paid. Taxes are collected in 
money ; and the only way, gifts and plunder aside, 
both of which are out of the question, by which 
any man gets money to pay his taxes with, is 
through exchange of some sort or other. Every- 
body must pay his taxes out of income ; the 
sources of income are only three, namely, wages, 
profits, and rents ; and each of these is a result of 
exchanges. Even the retired merchant, who lives 
on the interest of bis money, and pays his taxes 
out of interest, must at least loan out his money 



320 POLITICAL . ECONOMY. 

to get the interest, — which is an exchange. La- 
borers pay their taxes out of earnings, capitalists 
theirs out of profits, real-estate holders theirs out 
of rents, — all of them consequently out of ex- 
changes. 

It is, therefore, alike for the interest of the 
government as tax-gatherer, and for the interest 
of the people as tax-payers, that exchanges should 
be free. As the only motive to make exchanges 
is the gains to be derived from them, and as taxes 
can only be paid out of these gains, it is very fool- 
ish as well as unjust for a government to prohibit 
exchanges, or to try to make them more onerous 
than they naturally are. The nation whose in- 
ternal and external exchanges are the freest is, 
other things being equal, necessarily the most 
prosperous, and pays its taxes the easiest, since 
the reservoir out of which taxes are drawn becomes 
in this way the largest, and the ratio of taxes to 
the whole gains of exchanges the smallest. In 
other words, the interests of government, which 
must be maintained by taxation, and the interests 
of the people, who can only thrive by exchanges, 
are identical. 

In the second place, the modes in which gov- 
ernments practically levy their taxes are two, 
namely, direct and indirect. A direct tax is levied 
on the very persons who are expected themselves 
to pay it ; an indirect tax is demanded from one 
person in the expectation that he will pay it pro- 
visionally, but will make himself good by means 



TAXATION. 321 

of a higher price which he in turn will demand 
of the next purchaser of the article taxed. Thus 
an income tax is a direct tax, while duties on im- 
ported goods are indirect taxes. Both alike come 
out of the gains of exchanges, and are so much 
subtracted from what those gains would otherwise 
be ; but the differences between them after all 
justify the distinction drawn, and will justify us 
in studying each mode somewhat carefully. Let 
us begin with direct taxes. 

From the nature of the case, direct taxes must 
be either on Income or Expenditure. These 
are personal to the individual, and taxes on them 
must be borne by him, and cannot be thrown off 
upon others in the same way as indirect taxes may 
be. As the difficulty of a tax on a person's whole 
expenditure is much greater than one on his whole 
income, inasmuch as the items are far more numer- 
ous and diffused, it is never attempted to levy taxes 
on one's entire expenditure, but only on some spe- 
cial forms of expenditure, such as horses, carriages, 
watches, plate, and so on, kept for personal use. 
The United States have repeatedly levied such 
taxes as these, but they have been of short dura- 
tion, and, as such taxes do not reach all persons 
with any fair degree of equality, they are so far 
forth objectionable. There is a better way to tax 
than to tax expenditures in any form. 

But if any tax on expenditures is selected, I am 
much inclined to think with Mr. Mill, that a house- 
tax, levied on the occupier, and not on the owner 



322 POLITICAL ECONOMY. 

unless lie be at the same time the occupier, is the 
best form of such a tax. Taking society at large, 
the house a man lives in and its furniture are 
probably the best index attainable of the size of 
his general expenditures. The house and its con- 
tents are open to observation and current remark ; 
they are that on which persons rely more perhaps 
than on any thing else external for their considera- 
tion in society and general station in life ; the tax 
can be assessed with very little trouble on the part 
either of the assessor or of the occupier ; and even 
a domiciliary visit is scarcely required, as the house 
may speak for itself and its contents. On the other 
hand, the tax would not reach at all that compara- 
tively large class of persons who do not keep 
house ; nor would it reach with a,n.j fairness two 
other classes, the comparatively rich who care 
nothing about style, and the comparatively poor 
who frequently affect style. On the whole, and 
for good reasons, the nations are looking away 
from taxes on expenditures. 

It is not so, however, with taxes on income. 
For more than thirty years the English have found 
their income tax to be the most uniform, unfailing, 
expansive and manageable of all their fiscal expedi- 
ents. Their rate has varied at different times from 
fourpence to sixteen-pence to the pound of income. 
In 1857, this tax alone realized 180,255,000 to the 
English exchequer. The Germans have had as yet 
but a short experience with an income tax, but they 
are now successfully using it as one of their means 



TAXATION. 323 

of revenue. The late national income tax was 
new in this country, and for certain reasons not 
inherent in the nature of the tax became unpopu- 
lar in influential quarters^ and was discontinued 
after a few years' trial; but it was productive 
while it lasted, yielding, in 1866, $60,894,135, and 
would have been much more so, had it been popu- 
larly regarded as a permanent and proper tax. 

The beauty of an income tax is its simplicity 
and its harmony with the fundamental ideas of 
property and of taxation itself. The sources of 
income, as we have seen, are only three ; a tolera- 
ble method of book-keeping will enable any man 
to determine what his aggregate income of the 
year has been ; it is only a question of net receipts ; 
and if all other taxes were abolished, and it were 
settled that an income tax should be the policy of 
the nation, state, or municipality, it would make 
no difference when the money was earned, when 
the profits really accrued, or when the rents became 
actually due, the receipt of the income within the 
year would mark the time of its proper taxation. 

Besides, as all taxes must come from the gains 
of exchanges, it would seem reasonable that each 
man's taxes should be in exact proportion to the 
sum of his gains by exchanges. I do not think 
that there can be any other just ride of taxation. 
It is sometimes said, that each man should be 
taxed according to \ns> property ; but when we come 
to analyze this remark, it amounts to what has 
just now been said. What is property ? The old 



324 POLITICAL ECONOMY. 

Roman Law said, and said rightly, Property is any 
thing whicli can he hought and sold. The very sub- 
stance of property is the power and right to render 
services in exchange ; the test of property is a sale ; 
that which will bring nothing when exposed for sale 
either never was, or at least is not now, property ; 
the right of the government to tax anybody, con- 
sequently, depends on the question whether he has 
something to sell, or has actually sold something ; 
and the amount of the tax would seem to be deter- 
mined by the amount of the sales, just as the abili- 
ty to pay the tax certainly hinges on the fact and 
the amount of the sales. 

The farm, the foundry, the mill, the railroad, 
the real estate of every name ; personal property 
of every kind ; and personal acquirements and 
efforts of all descriptions, best appear, for the pur- 
poses of taxation, through the gains realized hy 
means of f them. If, for any reason, any of these 
forms of property should become unproductive, 
taxes should cease to be derived from them ; in- 
deed, must cease to be derived from them, because 
their owners can no longer pay taxes by virtue of 
them. If it be objected, as it has been, that lands, 
for example, presently unproductive, might be 
held untaxed under this principle for the sake of 
a prospective rise of price, I would reply, that 
that is no objection, that when the lands are sold, 
or rented, or otherwise made productive, the owner 
should be taxed on that revenue, that it will be 
time enough then, especially as men do not like 



TAXATION. 325 

to hold unproductive forms of property. Quick 
property alone is able to pay taxes, and, therefore, 
property should be taxed only so far as it is quick. 

There is an illusion about land and other real 
estate that needs to be dissi^pated before men will 
understand clearly the whole matter of taxation. 
All property has its limits as well as its birth in 
human services exchanged ; without constant 
watchfulness and foresight, without constant 
efforts in improvements and repairs, every form 
of real estate will deteriorate and become unpro- 
ductive. Land even in Great Britain, where land 
is scarce, is worth only about 25 years' rent ; and 
without the exercise of intelligence and will, every 
form of property ceases to exist. Therefore it is 
right to trace property for the purpose of taxation 
to the person of its owners, and to make the 
revenue they derive from it the basis of the claim 
that they contribute to the support of the state, 
and the size of the revenue they derive from it 
the gauge of those contributions. 

It may also be objected, that, under this princi- 
ple of an exclusive income tax, wages, the result 
of personal and professional exertion, would be 
taxed just the same as profits and rents, the result 
of previously accumulated property. That con- 
sequence would certainly follow; and I cannot 
see why it ought not to follow. Can anybody 
give a solid reason why wages should not be taxed 
as high as rents ? It might be said, perhaps, that 
a professional man earning a large income, on 



326 POLITICAL ECONOMY. 

which taxes are paid the same as on a similar 
income of a land-proprietor, dying, leaves to his 
children no further means of support, while the 
land-proprietor, dying, does leave such means. I 
admit that this is so ; but then, the income from 
that land continues to pay taxes, while that pro- 
fessional income does not ! Other members of 
the profession will do the business which the 
former one would have done had he lived, and 
they may be made to pay taxes on the income 
from it. What a man transmits to his children, 
whether a great name or a great estate, has nothing 
to do, as I take it, with tha amount of taxes that 
he ought to pay while he lives. It seems to me, 
accordingly, that the kind of activity by means of 
which a man realizes his gains, has nothing to do 
with the question of his taxes ; as he must pay 
his taxes out of these gains, why should he not 
pay taxes in proportion to these gains, from what- 
ever source derived ? 

As government is instituted and supported, in 
part, for the protection of property, and as property 
in its ultimate analysis is the right of rendering 
services for a return, it is plain that a demand for 
taxes from individuals proportionate to the aggre- 
gate of such services of theirs is in harmony with 
the ground principles of taxation. A universal 
and exclusive income tax would be just such a 
demand. Besides this, such a tax has a grand 
advantage over all other forms of taxation in that 
it has no tendency to disturb prices. Were there 



TAXATION. 327 

Tio taxation except on incomes, and were the in- 
comes rightly rendered, the prices of every thing 
bouglit and sold would be just as if there were no 
taxes at all ! Taxation would then be like the 
atmosphere, pressing equally on all points and 
consciously on none. 

It is through tricks ivrought on prices that the 
greatest injustice is done and suffered in tliis coun- 
try at the present time ; tlie depreciated currency, 
for example, raises some prices and not others, and 
some prices before others, and thus distributes its 
mischiefs unequally ; 'the " protective " tariff-taxes 
play fantastic tricks with prices, raising some and 
lowering others, thus worldng monstrous injustice 
on a great scale ; and almost all forms of taxation 
become unequal and unjust through their diverse 
action on prices. But a universal income tax, 
properly levied and fully responded-to by the 
payers, would have no influence at all upon prices, 
could by no possibility work essential injustice, 
and would be certain to be very productive. 

One incidental advantage of such a tax in such 
a country as this would be, that all men would be 
obliged to keep regular accounts, more orderly 
methods of business would prevail, each man 
would know better where he himself stood and 
whom of others it would be safe to trust, failures 
would be less frequent and widespread, and every 
thing financial would be more known and above- 
board. 

A second incidental advantage of an exclusive 



328 POLITICAL ECONOMY. 

income tax, and one too of great moment, espe- 
cially in a country organized as ours is, in Avliich 
taxes have to be paid, first to the local municipal- 
ity, second to the state, and third to the nation, 
would be, that the local government might ascer- 
tain the incomes once for all, the state and nation 
afterwards collecting merely an additional per 
centum for themselves ; or better still by amica- 
ble arrangement, neither party yielding its inher- 
ent right to tax, one set of officials might ascertain 
and collect the tax for all three governments at 
one and the same time. The vast economy of this 
simple plan is manifest enough ; and it is also mani- 
fest enough that official jealousies as between the 
governments would oppose its adoption. 

One objection to an income tax has been the 
publicity resulting from it. This is no objection 
at all, inasmuch as every man who pays taxes 
would seem to have a right to know that his neigh- 
bors are contributing to support the government 
pro rata with himself. In bearing up the great 
burden of government all citizens are copartners, 
and in this view each has a right to demand a 
look into the books of the rest. It is only by 
publicity and openness of method and result, that 
suspicions of unfairness and injustice in taxation 
can be kept at rest among the citizens. 

A second objection has been commonly urged, 
that men will not give in a true return of their 
income. It is true, that many men will not of 
their own free impulse make a true return, but 



TAXATION. 329 

they can be made to do so, as the forms are per- 
fected, as fraudulent returns are promptly pun- 
ished, and as the memory and conscience of the 
payers are quickened by the action of a healthful 
public opinion brought to bear through the annual 
publication of the list of their returns. Men are 
not usually so isolated from each other, the vari- 
ous methods of rendering services for a return are 
not so secret, as that a man's neighbors do not 
know pretty well the general amount of his in- 
come. Then there is the additional security of a 
solemn oath, of a fear of detection and punish- 
ment, of a desire to maintain a good mercantile 
credit, and a wish to stand well with one's class. 
At the very worst, it might be said, that evasions 
and fraud accompany also all other forms of taxa- 
tion. 

An income tax has not yet had a fair trial in 
this country ; special reasons made the late law 
obnoxious ; it was enacted as a temporary expedi- 
ent only, and not as a national experiment ; but I 
am thoroughly convinced that if the system were 
permanently established in lieu of all others, the 
difficulties under it would grow less and less every 
year, it would prove amply productive and elastic 
for the varying wants of the governments, and 
would subject the goveriunents themselves to the 
constant and healthful supervision of the tax- 
payers. It may be long before we shall ever come 
to this ; but the truth remains, nevertheless, that 
an income tax is the justest of all possible taxes. 



330 POLITICAL ECONOMY. 

We come now to indirect taxes. All of these 
are in effect, and most of them are in form also, 
taxes on sales. The only way, in fact, in which 
any person, from whom a tax is demanded and by 
whom it is paid, can throw off that tax upon some- 
body else, is either to sell the taxed article out- 
right for a higher price on account of the tax, or 
to make some other exchanges in connection with 
it, the terms of which are more onerous to the 
other party by reason of the tax. A tax on soda 
fountains, for example, may be reimbursed to the 
payer either by the resale of the fountain itself, 
or by a higher price charged to the drinkers of 
the beverage, by which the tax is distributed over 
many persons and much time. The taxes, by 
means of stamps, on bank-checks, liquors, and 
tobacco, and on railroad, insurance, and gas com- 
panies, levied by the present United States inter- 
nal revenue law, are indirect taxes, whereby the 
government gets in a lump what is afterwards dis- 
tributed over many subordinate exchanges. 

One advantage of indirect taxes is, that men pay 
them as a part of the price of the goods they buy, 
without thinking perhaps that it is a tax they are 
paying, and consequently without any of the re- 
pugnance that is felt towards a tax-gatherer who 
comes with an unwelcome demand. But, on the 
whole, it is doubtless better both for the govern- 
ment and for the people that men should know 
when they are paying taxes and how much taxes 
they pay ; for, it is a countervailing disadvantage 



TAXATION. 331 

of an indirect tax, that the price of the commodi- 
ty is usually enhanced to an extent much beyond 
the amount of the tax, partly because the tax is a 
cover under which dealers may put in an unreason- 
able demand, and partly because the tax, having 
to be advanced over and over again by intermedi- 
ate dealers, profits accumulate as an element of 
the price. 

Tariff-taxes are the most important taxes of this 
class. Our people paid to government in customs- 
duties in the year ended June 30, 1876, $148,071,- 
985, and the year before, $157,167,722. They 
paid in internal revenue to the national govern- 
ment during the same years respectively $116,700,- 
732, and $110,007,494. These were all indirect 
taxes ; and the ultimate buyers of the things thus 
taxed paid a great deal more in consequence of 
the tax than the government received from it. 
The net revenue of the national government from 
all sources, of which these two are the chief, was 
in 1870 just one-third more than in 1876, namely, 
$411,255,748. 

In our third chapter on Commerce, it was laid 
down, that tariff-taxes, in order to be productive 
and not unjust, must be levied in accordance with 
three principles, namely, first, on articles mainly 
or wholly imported from abroad, and not also pro- 
duced at home ; second, on as few articles as will 
produce the needed revenue ; and third, at such 
low rates as shall not greatly lessen the importa- 
tion of the articles taxed. When levied in accord- 



332 POLITICAL ECONOMY. 

ance with these principles, tariff-taxes are a tolera- 
ble means of revenue, especially if different kinds 
of taxes are adopted as between the local, state, 
and national governments. If the municipalities 
tax mainly real estate, and the states tax mainly 
corporations, a rude result of justice may be 
reached, if the nation taxes mainly imports which 
do not come into competition with native products. 
But I have already given reasons for believing 
that an income tax might be substituted for all 
these with great advantage to both governments 
and people. At any rate, the tariff-taxes at pres- 
ent levied in this country violate each of these 
three principles, and are as wrong in purpose as 
they are disastrous in practice. 

For example, tea and coffee are not produced in 
this country at all, and are almost universally used, 
and therefore are just the articles to bear a tariff- 
tax. The United States imported in 1875 317,- 
970,665 pounds of coffee. A revenue duty of 3 
cents a pound on this coffee would have realized 
$9,537,119.95 to the treasury of the United States. 
The ultimate consumers of the coffee would have 
paid somewhat more than this, because the tax 
would have been advanced two or three times over 
before the coffee reached their hands ; but it is evi- 
dent that the tax would have raised the price of 
nothing but the coffee, and substantially all that 
the people paid would have gone direct to the 
treasury. But, unfortunately, there is no tax on 
coffee, — excellent in all respects as such a tax 



TAXATION. 833 

would be, — because certain protectionists com- 
bined to repeal it in order to keep on the statute- 
book protective taxes tenfold more onerous. The 
consumption of coffee in this country is not far 
from 7 pounds a year for each inhabitant on the 
average, — man, woman and child. 

For a good many years the importation of tea 
just about kept pace with the population, — one 
pound for each inhabitant. Of late years the con- 
sumption of tea has been increasing, and is now 
not far from one pound and a half jjer capita^ say, 
60,000,000 pounds a year. This beverage is also in 
universal use ; and tea is not grown in this coun- 
try ; a tax upon it would not accordingly raise the 
price of any thing but the tea itself ; twenty cents 
'a pound would not be an unreasonable tax upon 
tea of every grade, or even twenty-five cents a 
pound ; and the former rate would realize on an 
import of 60,000,000 lbs. $12,000,000, and the lat- 
ter rate $15,000,000. But there is no tax at all on 
tea at present, because a delusive cry of a " free 
breakfast table," in 1872, blinded the eyes of our 
people to its repeal in order that there might be an 
excuse to keep on " protective " taxes, so-called, of 
a burdensome, not to say infamous, character. 

Tea and coffee together may easily be made to 
bring into the treasury from $20,000,000 to $25,- 
000,000 a year ; and if there are to be tariff-taxes 
at all, these are the best articles to bear them. 
These with wines, liquors, tobaccos, sugars, fruits, 
silks, and perhaps a few articles more, might well 



334 POLITICAL ECONOMY. 

constitute the entire list of tariff-taxed articles. 
A revenue of $100,000,000 from the tariff, and 
ilOO,000,000 from internal taxes and other mis- 
cellaneous sources, is ample for the legitimate 
uses of the United States. A larger revenue 
breeds unconstitutional, extravagant, and corrupt 
national expenditures. 

When tariff-taxes are laid, not for revenue, but 
to raise the price of home products, some curious 
results are exhibited. For instance, take blank- 
ets in 1875. The duty on imported blankets was 
from 85 to 95 per centum, equivalent to 20 cents a 
pound extra to the price charged by foreigners. 
We consumed 70,000,000 lbs. of blankets in 1875, 
and the price of the whole consumption was large- 
ly enhanced by this dutj^, indeed this enhancement 
was the sole motive for putting such duty on, while 
the revenue collected from blankets imported in 
that year was a paltry $8,451.22. Was there ever 
a tax more shrewdly devised to make the people 
pay much in order that the treasury may receive 
a little ? 

All the bunting that is used for flags in tliis 
country is doubled in price by a tariff-tax, which 
amounts to $5.70, gold, per piece of twenty square 
yards. Not a great deal is now imported, but the 
ruling price of the domestic is $10 gold per piece, 
while the old price before the duty was put on 
was from $5 to $5.50 gold per piece. The duty 
is 20 cents per square yard, and 33 per centum of 
value additional. 



TAXATION. 385 

For the two fiscal years 1873 and 1874, the 
average duty actually paid on imported cottons 
was 36 per centum of their value ; on glass and its 
manufactures 46 per centum; on iron and steel 
and their manufactures 31.50 per centum; on 
other metals and their manufactures 31 per cen- 
tum ; on paper and boohs 25.50 per centum ; and 
on wool and its manufactures 54.50 per centum. 

The duties on hay-knives, reaping-hooks, scythes 
and sickles, are 45 per centum; on shovels and 
spades, if of iron 35, and if of steel 45, p)er cen- 
tum ; and on anvils, blacksmiths' hammers and 
sledges, 2 J cents per pound, — all to encourage 
the interest of American labor ! 

Such tariff-taxes as these, and many more in 
our present tariff, cannot be defended as taxes^ 
because they compel the people to pay a great 
deal more in consequence of the tax than the 
treasury gets as a result of the tax. Protection is 
a great foe to revenue, and is really a good friend 
to nobodj^; and when that is eliminated, as it 
surely will be, from our tariffs, it will be easy to 
determine whether a tariff purely for revenue 
shall be kept up or not. If it be kept up, it will 
bo a body of taxes on articles ready for consump- 
tion, and mainly or wholly imported, such, for 
instance, as sugar. Each man, woman and child 
in the United States consumes on the average 30 
pounds of sugar a year, say, 1,200,000,000 lbs. for 
the whole population. A tax of 1 cent a pound 
on this sugar would realize annually $12,000,000. 



336 POLITICAL ECONOMY. 

If it be not kept up, then some system of internal 
revenue, most properly a universal income-tax, 
will be ready to take its place. Such a tax, ex- 
clusive of all others, is clearly in harmony with 
the nature of taxation and the interests of all the 
people. 

I append a few principles applicable to taxation 
in all forms and at all times. 

1. Taxes should be simple. The payers should 
be able to understand the whole process by which 
they are to be taxed, and be able to calculate be- 
forehand about what the government will demand 
from them as their contribution to the public 
burdens. Every thing in taxation should be open 
and clear. To conceal, to complicate, to play fast 
and loose, is bad enough anywhere, and too bad in 
taxation. To combine, as our tariff does, specific 
and ad valorem duties upon the same article, vio- 
lates this sound rule. It makes it difficult for the 
importer to know what his tax will be. It grows 
an abundant crop of misunderstandings, bicker- 
ings, frauds, and corruptions at the custom-house. 

Specific duties, that is, taxes by the pound, 
yard, gallon, and so on, are better than ad valorem 
duties, that is, taxes upon the supposed value, be- 
cause they are simpler and more calculable. To 
combine the two on the same article is a device 
of " protection," is in the interest of concealment, 
and is a godsend to informers. Almost all nations 
have been of late years simplifying their systems 
of taxation. Great Britain has taken the lead in 



TAXATION. 337 

this. The United States have simplified their 
internal-revenue system, while the tariff, though 
somewhat simpler than it was, is still the home of 
twists and turns. Some of the states, and notably 
Pennsylvania, have lately improved their state 
tax-systems ; and attention has been drawn to the 
defects of municipal taxation by the startling 
frauds of the late government of New York City. 
Much remains to be learned, and still more to be 
done, by the nation, states, and local governments, 
in the interest of a simple, definite and just taxa- 
tion. 

2. Taxes should be low. A high tax not infre- 
quently stops exchanges in the taxed articles alto- 
gether, and of course the tax then realizes nothing 
to the government. As the only motive to an 
exchange is the gain of it, the exchange ceases 
whenever the tax cuts so deeply into the gain as 
to leave little margin to the exchangers. The 
greater the gain left to the parties after the tax is 
taken out, the more numerous will the exchanges 
become, and the greater the number of times will 
the tax fall into the coffers of the government. 
In most articles, consumption increases from a 
lowered price in a greater ratio than the diminu- 
tion of the rate of tax ; so that the interests of the 
consumers and of the revenue are identical. On 
certain articles of luxury and ostentation, high 
taxes may properly enough be laid, because their 
incidence will hardly tend to diminish consump- 
tion, and it would be scarcely to be regretted if 



338 POLITICAL ECONOMY. 

it did. Fashion is abashed whenever her fancies 
become too common ; and a high tax sometimes 
works in harmony with fashion, and becomes pro- 
ductive when and because comparatively few are 
called on to pay it. The rich, however, are more 
evenly reached through an income tax, than 
through any taxes on expenditures no matter how 
shrewdly levied. 

3. Taxes should be economical. That is to say, 
the tax-money should be kept out of the pockets 
of the people as short a time as possible, disburse- 
ment following quick upon collection. It is poor 
policy to gather taxes at the beginning of the year 
which will not be disbursed till the end of the year. 
Let the people use their money till it is wanted at 
the treasury ; and if the taxes do not then come in 
as fast as they are wanted, it is better to issue what 
are called in England exchequer bills, and in this 
country certificates of indebtedness, to be redeemed 
at' the end of the year from the proceeds of the 
taxes, than to let the people's money lie idle in the 
treasury. 

4. Taxes should relate to property and not to 
person. I do not see how a poll tax can be justi- 
fied to any man's reason. It stands, at any rate, 
upon different ground from all other taxes, and is 
to be defended, if it can be defended at all, by a 
different set of reasons from those applicable to 
other taxes. A man who pays a poll tax must 
make some exchanges in order to enable himself 
to pay it, and why should not the tax be condi- 



TAXATION. 339 

tioned on the exchanges, as all other taxes are, 
rather than on the poll, the possession of which 
does not enable a man to pay taxes at all ? It is 
usually said, that poll taxes are paid to govern- 
ment for the protection of one's person, and prop- 
erty taxes for the protection of one's property : is, 
then, the government at liberty to fail to protect the 
person of one who pays no poll tax ? Are not the 
persons of all citizens or subjects equally sacred to 
the law, whether they pay poll taxes, or not ? That, 
therefore, is no sound reason for a poll tax. The 
whole truth seems to me to be, that the right to 
tax on the part of the government grows out of 
the whole service rendered by government to the 
individual, and that, as the return service (or tax) 
is connected with and limited by the exchanges 
which the individual makes under the eye of 
government, the tax itself should be proportioned 
as nearly as possible to the amount of those ex- 
changes, and should be justified simply on the 
ground of them. 

5. Taxes should not disturb prices. Taxes are 
an element which may be made to play, — which 
have been made to play, — fantastic tricks with 
prices. What has become famous under the name 
of " Protection " is nothing in the world but a 
shrewd scheme to raise certain prices by means of 
certain taxes. Taxes are too serious and sacred a 
matter to be made a cat's paw of in this indirect 
manner for an unworthy purpose. Taxes, like an 
exclusive income-tax, which affect no prices, are 



840 POLITICAL ECONOMY. 

obviously the best of all; taxes, which affect 
prices less than otiier taxes, are better than those 
taxes; while taxes, like protective tariff-taxes, 
which are designed to disturb prices, are of neces- 
sity the very worst of all. 

6. Taxes should be considerate towards the poor. 
If the necessities of the government require it, 
it has the right, in accordance with the principles 
that have now been unfolded, to demand of all 
persons, who are capable of making exchanges 
and who do make them, something in the form of 
taxes. But it is every way better, when possible, 
that people of very small incomes should be ex- 
empted from taxation altogether ; because, in the 
present age of the world, the well-to-do citizens of 
every country are able to bear without too great 
difficulty the legitimate burdens of their govern- 
ment ; and because nothing tests better the degree 
of civilization which a nation has reached than the 
care and solicitude it displays for the welfare of 
its poorer citizens. 



INDEX. 



Abraham, 48, 189. 

Abrasion of coinB, 210. 

Abstinence the source of capital, 
116. 

Abstinence, motives to it, 116. 

Abyssinia, 203. 

Acceptor of a bill, 301. 

Acconunodation bills, 288, 303. 

Acres planted to cotton in 1876, 64. 

Action of government, 52. 

Actions on the street, or in the mar- 
ket, 11. 

Adams National Bank, 283. 

Ad valorem duties, 158. 

Advantages of division of labor, 109. 

Advantages of credit, 312. 

Advantages of an income tax, 328. 

Africa, 213. 

Aggregate production of the world, 
163. 

Aggregate of money, 209. 

Agriculture, 154. 

Agriculture less open to division of 
labor, 112. 

Alaska, 14. 

All laborers equally honorable, 106. 

Alloy, 239. 

Amsterdam, 128, 245. 

Analysis of cost of capital, 128. 

Analysis of an exchange, 13. 

Ange'ls, 35. 

Animals, 35. 

Animals for motion, 84. 

Antiquity, 177. 

Antoine de Mont Chrestien, 11. 

Antwerp, 293. 

Apprenticesliip, 98. 

Approximation of finished commodi- 
ties to raw materials, 130. 

Archbishop Whately, 12. 

Aristophanes, 243. 

Aristotle, 11, 178. 

Art of banking, 293. 

Asia Minor, 204. 

Assignats, 257. 



Assyria, 189. 
Atlantic cable, 83. 
Australia, South, 87. 
Austria, 241. 
Axes, 116. 



B. 



Balance, 189. 

Balance-wheel, 227. 

Balance of trade, 180. 

Baltic provinces, 173. 

Bank bills, 17, 277. 

Bank charter act, 251. 

Bank checks, 1 7. 

Bank defined, 279. 

Bank deposits, 279. 

Bank discounts, 284. 

Bank of England, 124, 186, 189, 225, 

234, 248, 290. 
Bankers' bills, 308. 
Bankers' clearing-house, 17. 
Banking, elements of, 195. 
Banking department, 252. 
Bar iron, 171. 
Barley, 173, 224. 

Barriers, natural and artificial, 139. 
Barter, 190. 
Bastiat, 195. 
Battle of Friedland, 97. 
Battles of the world, 180. 
Beauty of coins, 240. 
Beecher, H. W., 105. 
Belgium, 241. 
Belgium's sales, 165. 
Berkshire manufacturers, 66. 
Bill discounters, 286. 
Bill of lading, 16. 
Bills of exchange, 301. 
Bills on time, 286. 
Blankets, 148, 334. 
Blood of international commerce, 

230. 
Bonds, 276. 

Bonds of railroads, 17. 
Bonds of the United States, 17. 

341 



342 



INDEX. 



Book accounts, 275. 

Boot and shoe business, 171. 

Bottoms, American, 165. 

Boweii's " Political Economy," 217. 

Braintree, Mass., 184. 

Brazil, Emperor of, 145. 

Breach of public faith, 259. 

Breakfast-table, free, 334. 

Bright, John, 160, 169, 177. 

British coins, 204. 

British Government, 124. 

Britisli legislation, 185. 

British Museum, 203. 

British North American provinces, 

164. 
Broad markets, 111. 
Bronze, 203. 
Bronze coins, 240. 
Buckle, 20. 

Buiklings used for production, 118. 
Bullets, 203. 
Bunch of tacks, 30. 
Bunting, 147. 154, 334. 
Burchard, H. C, 153. 
Burke, Edmund, 185. 
Burnian empire, 203. 
Burns, 310. 
Butter, 176. 



C. 

Caesar, 186, 222. 

Cakes of tea, 203. 

Calhoun, John C., 152. 

California, 225, 235. 

California wool, 66. 

Call loans, 288. 

Canada, 179. 

Canadians, 134. 

Capital breeds capital, 122. 

Capital defined, 101. 

Capital, its definition, 113. 

Capital, its etymology, 112. 

Capital, its forms, 102, 116. 

Capital looks to an increase, 114. 

Capital quickly wears out, 128. 

Carey, H. C, 54, 113, 216. 

Carpets, 147. 

Carthaginians, 203. 

Case of boots, 126. 

Cash credits, 274, 310. 

Catalactics, 12. 

Cattle as money, 202. 

Cautioners, 312. 

Census of 1870, 208. 

Chain of reasoning, 174. 

Chambers of agriculture, 159. 

Chambers of commerce, 159. 

Character in relation to services, 106. 

Chase, Salmon P., 356, 258, 

Check bank, 295. 

Checks defined, 294, 

Checks to rising and falling prices, 68, 



Chicago Tribune, 181, 

China, 203. 

Cicero, 228. 

Circular letters of credit, 309. 

Circulating and fixed capital, 122. 

Claims, 17, 266, 

Classes of things exchangeable, 18. 

Classes of things in point of supply, 
64. 

Classification of laborers, 98, 

Cleariug-house, 17, 297. 

Cleon, 243. 

Clergymen and their salary, 104, 

Clerks of clearing-house, 300. 

Cobden, Eichard, 160. 

Coffee, 333. 

Coffee taxes, 152. 

Coin bonds of the U. S., 258, 

Coin Sliver in Greece, 201. 

Coins, 204. 

Coinage, 232. 

Collapse of artificial business, 174. 

Columbus, 239. 

Commerce defined, 133. 

Commerce, domestic, 133, 135. 

Commerce, foreign, 133. 

Commercial bills, 308. 

Commercial crises, 315. 

Commodatum, 272, 

Commodities, 13, 266. 

Common laborers, 100. 

Common language, 200. 

Common sense pronounces for lib- 
erty, 133. 

Competition lowers values, 93. 

Complete protection, 149. 

Comptroller of the currency, 254. 

Condillac, 20. 

Congress, 239. 

Congress in 1862, 200, 216. 

Congress, power of, 137. 

Congressional law of banking, 265. 

Connecticut, 262. 

Qonsols, 277. 

Constantine, 222. 

Constitution of the U. S., 133, 136. 

Constitutional taxes, 137. 

Consumer is customer, 72. 

Consumption derived and defined, 72. 

Continental money, 257. 

Copper skewers, 201. 

Copyrights, 17, 

Corn, 54. 

Corn-laws in England, 68, 172. 

Cost of labor, 126, 128. 

Cost of production, 54, 126, 129. 

Cost of reproduction, 84. 

Cotton, 64. 

Cotton mill, 93. 

Council of Commerce in France, 159. 

Cowry shells, 202. 

Credit, 200, 266. 

Credit like a circle, 312. 

0re4Jt-pap6r, 316. 



INDEX. 



343 



CiedltB, IT. 

Cushraan, Charlotte, 105. 
Custom house at St. Louis, 14S. 
Custom of dex>osits, 295. 



Daniel Defoe, 35. 

Debt, 195. 

Debt explained, 270. 

Debtors, 233. 

Decimetre, 238. 

Degree of division of labor, 110. 

De Lesseps, 98. 

Demand defined, 59. 

Denarius, 202. 

Denomination-dollar, 192, 214, 

Denominations, 191. 

Deposit banking, 283. 

Deposits defined, 282. 

Depositum, 281. 

Depreciation, 247. 

Desires of men, 35. 

Detroit, 166. 

Dickens, Charles, 98, 105. 

Differences between nations, 139. 

Director of the mint, 210. 

Disadvantages of division of labor, 
109. 

Disadvantages of credit, 314. 

Discount defined, 285. 

Diversity of advantage, 40, 138, 163. 

Division of labor defined and ex- 
plained, 107. 

Dollar, 213. 

Dollar, American, 198. 

Dollar bUl, 199. 

Dollar defined, 196, 

Dollar's worth, 192. 

Double standard, 233. 

Double working of demand and sup- 
ply, 67. 

Drachm, 202. 

Drawee, 301. 

Drawer of the bill, 301. 

Durability of metals, 231, 



E. 

East India Company, 229. 
East Indies, 202. 
Economical taxes, 338. 
Economy, its etymology, 12, 
Effects of medium on exchanges, 

206. 
Effort not always labor, 95. 
Efforts, 38. 
Eggs. 176. 
Electrum, 204. 
England, 221. 

England abandons prot«etiou, 157. 
English farmer, 170. 



English exchequer, 322, 
English laborers, 177. 
Enlarged demand for products, 176. 
Enterprise and excellence, 42. 
Equation of competition, 67. 
Establishments, large and small. 111. 
Estimates, 44. 
European wars, 19. 
Exceptions to free exchanges, 52, 
Exchanges defined, 22. 
Exchanges discouraged, 149. 
Exchanges sometimes disappoint- 
ing, 45. 
Exchequer bills, 338. 
Expenditure taxes, 321. 
Export trade, 171. 
Exports are free, 136. 
Exports ^er capita, 177. 
Extinguishment of credit, 312. 



F. 

Families in New Hampshire, 77. 
Farm products buy mora and moie 

manufactures, 89. 
Farmer's advantage, 89. 
Fee simple, 77. 
Fertility in lands, 78. 
Florins, Austrian, 241. 
Fluctuations in gold, 220, 
Fluency of met^, 228. 
Foreign products, 174. 
France, 164, 176, 177, 236, 241, 
Frankfort, 293. 
Free breakfast-table, 152. 
Free discounts, 290. 
Free exchanges, 175. 
Free gifts of Nature, 79. 
Free trade, 162. 
Free trade alliance, 161. 
Free trade defined, 160. 
French franc, 241. 
French metric system, 238. 
Friend of laboring classes, 173, 
Furnaces and forges, 184. 



G. 

Gains of exchanges, 149, 319. 
Gainsborough, the painter, 65. 
General rise or fall of valuee, 57. 
Grcrman coins, 240. 
German unit, 240. 
Germany, 160, 221 222, 236. 
Girl makmg envelops, 85. 
Gladstone, prime-minister, 161. 
Glass works, 185. 
Glove-finger^ 236. 
Glut of services, 37. 
Goal, the ultimate, 37. 
God a giver, not a seller, 75. 
God's ^ta, 29. 



344 



INDEX. 



Gold biU, 260. 

Gk)ld cheaper than commodities, 219. 

Gold demonitized, 220. 

Gold doUar in 1834, 215. 

Gold for balances, 307. 

Gold in Bank of England, 291. 

Gold the best measure of value, 56. 

Golden fleece, 226. 

Goods not protected, 165. 

Government in relation to coins, 

233. 
Grade of comforts, 131. 
Grain in England, 172. 
Grammes, 238. 
Grand Trunk Railroad, 167. 
Gratuitous elements in value, 30. 
Gravitation, 85. 
Gravitation of the earth, 207. 
Grease of the wheel of exchange, 

208. 
Great Britain, 160, 161, 172, 176, 179. 
Great Britain's revenue, 158. 
Greece, 223, 226, 241. 
Greek comic poet, 243. 
Gresham's law of currency, 243. 
Greylock, 227. 
Grievance, actual, 162. 
Groschen, 241. 



Hamburg, 293. 

Happiness of the world, 60. 

Harmony with the spirit of progress, 

180. 
Health, morals, and revenue, 52, 

132. 
Hebron, 49. 
Herodotus, 204, 223. 
Heth, 48, 189. 
Hill. Capitoline, 187. 
Holland, 179. 
Homeric poems, 187. 
Hooper, Samuel, 122. 
Hopkins, Prof., 212. 
House tax, 321. 
How to resume specie payments, 

261. 
Hume, David, 208. 



I. 

Iceland, 203. 
Ideal inch, 213. 
Ideal money, 213. 
Implements, 116. 
Importers, 159. 
Improvements in land, 119. 
Income, 319, 321. 
Income tax, 321. 
India, 202, 203. 
India-rubber yard-stick, 818. 



Indirect taxes, 320, 330. 
Inferior and superior money, 244. 
Instruments of credit, 274. 
Insurance company, fire, 283. 
Insurance company, life, 283, 
Intellect, 47. 

Intelligence and education, 182. 
Interest of government in taxation, 

320. 
Inventing tools, 117. 
Inventions are natural, 92. 
Investments in aid of locomotion, 

119. 
Invoices, 159. 
Irish Church, 182. 
Isaac, 49. 
Israelite, 49. 
Issue depai-tment, 252. 
Italian monte, 280. 
Italy, 177. 



J. 

Jacob, 49. 
Jacobites, 246, 249. 
Jevons, Prof., 193, 295. 
Jewels, 236. 
Jewett, Hugh J., 97. 
Jews, 49, 50. 
July Fourth, 154. 
Juno Moneta, 187. 
Justinian, 222. 



K. 

Keen sense of interest, 162. 

Kiehl, 20. 

Knack for contrivances, 92. 



Labor defined, 94. 
Labor-givers and labor-taJiers, 99. 
Laborers in skilled branches, 100. 
Land in Great Britain, 325. 
Language formed for popular lue, 

54. 
Latin terms, 271. 
Laurium, 226. 

Law of agricultural returns, 80. 
Law of demand and supply, 59, 
Law of exchanges, 306. 
Law of land, 76. 
Legend on coins, 239. 
Lever lifting on the masses, 125. 
Liberty, 239. 

Liberty of exchange, 132, 133. 
Limits of credit, 273. 
Limits of property, 325. 
Lind, Jenny, 105. 
Linen cloths, 184. 



INDEX. 



345 



Liszt, 98. 

Litre, 55. 

Liverpool, 123. 

Livy, i!22. 

Loan and borrow, 271. 

Locke, John, 14. 

London, 230, 293. 

London a mart for grain, 60. 

London clearing-house, 269, 297. 

Loosened morals, 151. 

Louisiana, 136. 

Low taxes, 337. 

Lydians of Asia Minor, 204. 

Lynn, Mass., 184. 



M. 

Machinery relieves labor, 96. 

Machpelah, 48, 189, 235. 

Macleod, H. D., 12, 32, 113, 122, 195, 

204. 
Macoute, 213. 

Magic screw of discount, 292. 
Magna Cbarta, 50. 
Maine, 138. 
Malthus, 54, 82. 

Manager of clearing-house, 299. 
Mark, German unit of money, 242, 
Mark Lane, 60, 62. 
Market, London, 34. 
Markets are mutual, 150. 
Marriage, a relation, 33. 
Massachusetts, 134, 184, 262. 
Material things. 34. 
Maximum production of the world, 

102. 
Measure of value, 53, 86, 192. 
Mechanism of exchange, 193. 
Media of exchanges, 207. 
Mediaeval times, 179. 
Medium of exchange, 192. 
Medium simplifies trade, 206. 
Meissonier, 97, 99. 
Metre, 55. 

Michigan Central Kailroad, 166. 
Middle ages, 178. 
MUkman and baker, 13. 
Mill, J. S., 54, 321. 
Milwaukee, 61,63. 
Mint, 194. 
Miser, 207. 
Mississippi, 138. 
Modes of taxation, 319. 
Money, 56, 189, 193, 194. 
Money a generalized capital, 121. 
Money a standard, 193. 
Money a universal medium, 207. 
Money a tool, 210. 
Money as capital, 120. 
Montesquieu, 213. 
Moors, 141. 
Morals, 18. 
Motive powers, 85. 



Motives for an exchange, 41, 133. 
Motives to invent, 92. 
Movables and real-estate, 14. 
Moving of materials or implements, 

95. 
Mowing-machines, 83. 
Mt. Cenis tunnel, 140. 
Musgrave, Sir Anthony, 19, 87. 
Mussulmans, 49. 
Mutuum, 272. 



N. 



National bank system, 256. 

Nations are as individuals, 155. 

Natural agents, 73. 

Natural tendency of protection, 156. 

Nature gives freely, 74. 

Nearer nations, 164. 

Nevada, 235. 

New England, 171. 

New England Indians, 202. 

Newfoundland, 203. 

New market for labor, 131. 

New motives, 163. 

New Netherlands, 203. 

New York, 134. 

New York clearing-house, 269, 298. 

Nickel, 237. 

North, Lord, 185. 

Novgorod, 203. 



Oaken chair, 26. 

Oak-trees, 28. 

Obligation defined, 268. 

Ocean tides, 173. 

O'Conor, Charles, 98. 

Ohio wools, 157. 

Onerous human efforts, 27. 

Onondaga Salt Company, 166. 

Opportunity to sell, 175. 

Orders to pay, 274. 

Ornaments, 224. 

Ounce, 194. 

Ounce of bullion, 224. 

Ounce of coined money, 224. 

Overend, Gumey, and Company, 253. 



Painters, 40. 

Par of international exchange, 305. 

Parepa Bosa, 99. 

Paris, 293. 

Paris provision trade, 122. 

Partial glut, 37. 

Past, present, and future, 267, 278. 

Patent inkstand, 190. 

Patent-rights, 94. 



346 



INDEX. 



Paul's distinction, 45. 

Paupers, 177. 
Payee, 276, 301, 303. 
Peabody^ George, 253. 
Peculiarity of economical actions. 
12. ' 

Pecunia. 187, 188. 
Peel, Sir Robert, 251. 
Pegging-machine, 72. 
Penknife, 190. 
Pennsylvania, 184, 337. 
Personal services explained, 15. 
Persons rather than things, 272. 
Petroleum export, 74. 
Pheidon, 187, 201. 
Phelps, Dodge, and C!ompany, 159. 
Physician, 15. 
Pig iron, 172. 
Pint, 190. 

Plague in London, 35. 
Pliny, 188. 

Political economy, 226, 272, 318. 
Political economy, names tor, 12. 
Poll taxes, 338. 
Polo, 203. 

Poor people under taxes, 340. 
Poor's " RaUroad Manual," 119. 
Portability of money, 236. 
Post, New York Evening, 216. 
Post-office, 86. 
Post-office orders, 296. 
Power loom, 121. 
Powers of mind, 36. 
Precedence of cattle, 188. 
Precious metals, 188. 
Premium on gold, 217. 
Price defined, 58, 205. 
Prices depend on quality of money. 

Prices disturbed by taxation. 327. 

339. ' ' 

Prices may rise or fall generally, 59. 
Principles of taxation, 319. 
Print goods, 37. 
Produce market, 70. 
Producer and product, 71. 
Production derived and defined, 70. 
Production grows constantly easier, 

86. 
Production is effort, 70. 
Productive and unproductive labor, 

94. 
Products loaned or rented, 120. 
Professional labor, 103. 
Profit defined, 114. 
Prof. Morse, 98. 
Promise in credit, 267. 
Promises to pay, 274. 
Promissory notes, 276. 
Property defined, 16, 268, 324. 
Property is theft, 169. 
Prophet Ezekiel, 178. 
Prosperity of capital, 102. 
Protection, 147, 162. 



" Protection to native industry," 138. 
Protectionists, 333. 
Protective tariff defined, 146. 
Protective taxes, 334, 336. 
Proudhon, 169. 
Providence, 163. 
Publicity in taxation, 328. 

Q. 

Qualities in relation to value, 30. 
Quantity of metals, 226. 
Quart cup, 217. 
Quarter of wheat, 169. 
Queen Elizabeth, 243. 
Quick payments, 211. 
Quittance, 199. 



Rachel, 105. 

Railroad shares, 16. 

Rate per cent, 128. 

Rate of interest, 122. 

Rate of profit, 123. 

Rate of profit declines, 124. 

Rate of wages, 128. 

Rates of discount, 289. 

Ratio of coin to paper, 254. 

Ratio of gold to silver, 223. 

Ratio of property to money, 209. 

Raw cotton, 130. 

Raw materials, 118. 

Real bills, 304. 

Real-estate and movables, 14. 

Reciprocity, 164. 

Relative advantage, 41 . 

Relative efficiency, 41. 

Remitting by bills, 304. 

Rents, 325. 

Requisites of production, 73. 

Resume of money propositions, 264. 

Revenue tariff, principles of, 143. 

Rhode Island, 263. 

Ricardo, David, 54. 

Ridley's reaper, 87. 

Right of rendering services, 326. 

Roman law, 268, 272. 

Romans, 236. 

Rowley, Mass., 184. 

Rubenstein, 105. 

Rupee, 202. 

Russia, 203. 



S. 

Sagacity, 221. 

Salem, Mass., 185. 

Salt, 167, 203. 

Salt tax, 144. 

Sandwich Islands, 167, 179. 



INDEX. 



347 



San Francisco, 167. 

Satisfactions, 47. 

Say, the French economist, 19. 

Scarcity, 166. 

Schedule of taxes, 142. 

Scotch parliament, 229. 

Scotland, 203, 274, 310, 312. 

Scottish banks, 310. 

Seal of the market, 95. 

Second function of money, 212. 

Seigniorage, 234. 

Selif-interest, 44. 

Sellers and buyers of wheat, 61. 

Senate of Rome, 228. 

Sensibility, 48. 

Sor\ant-^rl, 95. 

Services defined and analyzed, 21. 

Set-off, 313. 

Ship-buikllng, 147. 

Shoemaker and tailor, 41. 

Sicilian coins, 203. 

Silks, 154, 203. 

SUver, 34. 

Silver coins, 204. 

Silver variations, 222. 

Simple taxes. 336. 

Skewers, Greek, 201, 203. 

Skilled services, 39. 

Slavery, 152, 168. 

Small services, 207. 

Smith, Adam, 20, 54, 203, 228. 

Social statistics, 181. 

Socialism, 168. 

Socictv a hive, 39. 

Solferino, 97, 99. 

Solomon, 235. 

Source of taxes, 319. 

South American states, 164. 

South Carolina, 152. 

Spain, 140, 229, 241. 

Spaniards, 221. 

Sparta. 203. 

Spaulding. E. G.,259. 

Specific duties, 336. 

Sphere of gain, 45. 

Sphere of morals, 44. 

Spirit of free trade, 181. 

Spirits, taxes on, 148. 

Stagnation of society, 46. 

Steadiest values, 68. 

St. Ix)uis, 145. 

Stock of coins, 211. 

Straits of Gibraltar, 140. 

Struggles at three points, 180. 

Subsidiary silver coins, 260. 

Successful exchanges, 40. 

Sudden change in fashions, 35. 

Suetonius, 222. 

Suez Canal, 140. 

Sugar, 335. 

Sugar-planters, 167. 

Supply defined, 60. 

Switzerland, 241. 

Syracuse, N.Y., 166. 



Tarifa, 140. 

Tariff derived, 141. 

Tariff taxes, 142, 171, 331, 336. 

Tax on raw material, 171. 

Tea, 158, 332. 

Telegraph f aciUties, 90. 

Terence, 70. 

Thompson, Prof., 12. 

Time of advance of capital, 128. 

Tobacco, 158. 

Toiling millions, 91. 

Trade dollar, 237. 

Troughton's inch, 212. 

Tubal Cain, 117. 

Tuscany, 177. 

Twelve years of high duties, 171. 



Under valuations, 159. 

Unification of money, 198. 

United States, 135, 155, 164, 173, 179, 

208. 221. 
United States in 1862, 127. 
United States interfere with liberty, 

133. 
Universal income tax, 327. 
Unwashed wool. 158. 
Use waits on nature, 206. 
Usury laws, 262. 
Utility defined, 25. 
Utility is free, 26. 
Utility in lands, 79. 



V. 

Value, a fundamental word, 22. 

Value always a result, 69. 

Value defined, 22. 

Value exists in minds only, 69. 

Value in use. 23. 

Vanderbilt, 50. 

Venice, 280. 

Vermont, 134. 

Vermonter's rum, 135. 

Vemet, Horace, 98. 

Verses of Aristophanes, 243. 

Villa Franca, 97. 

Virginia, 184, 203. 

Virtue first, value next, 69, 



W. 

"Wages class, 173. 

Wages defined, 98. 

Wages in England and the United 

States, 127. 
Wages, maximum of, 99. 
Wages, minimum of, 99. 



348 



INDEX. 



Walker, Amasa, 279. 
Walker, Robert J., 150. 
Wampum, 202. 
War in Europe, 152. 
Washington, 183. 
Ways and means committee, 183. 
" Wealth of Nations," 20, 106. 
"Wealth," useless as a scientific 

term, 20. 
Weavers, 170. 

Weight of gold or silver, 198. 
Well-to-do citizens, 340. 
Western States, 77, 88. 
Whately, Archbishop, 20. 
Wheat, 26, 173. 
Wheat in New England, 88. 
Whitney, the solo singer, 25. 
Whittier, 51, 316. 
Wider circle of consumers, 131, 
Will; 49. 

William and Maiy, 246. 
WilUams College, 212. 
Wine, 158. 



Winthrop, Gov., 184. 

Wool, 158. 

Wool and woollens' tariff, 156. 

Wool-growers, 156. 

Woollen cloths, 184. f , 

Woollen manufacturers, 156. 

Woollens, 147. 



X. 



Xenophon, 226. 



Yachts, 119. 
Yard-stick, 217. 
Young Pretender, 249. 



Zeal of limited owneiship, HI. 



LIBRARY OF CONGRESS 





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